Snow says China moving to flexible yuan

By Glenn Somerville

BEIJING (Reuters) – U.S. Treasury Secretary John Snow said
on Monday that he was convinced China was committed to letting
market forces drive the yuan’s value but warned Beijing had to
show progress to hold off U.S. protectionist sentiment.

Speaking at a news conference after meeting Chinese Finance
Minister Jin Renqing and Zhou Xiaochuan, governor of the
People’s Bank of China, Snow said both had given assurances of
Beijing’s will to further liberalize the country’s financial
markets and continue progress toward a more flexible yuan.

China revalued the yuan by 2.1 percent in July and
abandoned a peg against the dollar in favor of a managed float.

But since then, authorities have allowed the yuan to rise
by less than 0.3 percent and U.S. law-makers are once again
growing unhappy at what they call a seriously undervalued yuan.

Asked why he was confident that China would indeed let the
currency range more freely, Snow said: “Governor Zhou and
Minister Jin reaffirmed this fundamental commitment and
reviewed with me a number of initiatives under way in financial
markets, particularly with respect to the trading platform …
that are preparing the way for greater currency flexibility.”

In a week-long visit to China, Snow has been trying
simultaneously to show Congress that Treasury is pushing
toughly for currency reform and to encourage wary Chinese
officials to press on with changes that U.S. officials say will
boost China’s domestic demand and cut America’s trade deficit.

Snow was participating in meetings of the U.S.-China Joint
Economic Commission, where the United States is trying to get
Beijing to adopt futures and options and other market
mechanisms needed to support a floating currency.

“Moving to a truly flexible exchange rate requires a lot of
preparatory steps. China is seriously engaged in taking these
preparatory steps,” Snow said. “These are the things that give
me encouragement.”

The U.S. Treasury is due to report next month whether it
judges China to be manipulating its currency. If it does, that
could result in punitive trade measures against Beijing.

Some U.S. lawmakers are separately proposing to slap
tariffs of as much as 27.5 percent on China unless it
unshackles the yuan.

MAKE NO MISTAKE

Snow called these legislative proposals “ill-conceived” and
said he was hopeful of being able to point to progress China
was making toward more-open markets.

“But we need to see movement,” he added. “Let’s make no
mistake about it. Congress will demand to see movement.”

During his Chinese visit, Snow has sought to broaden the
discussion of U.S.-Chinese economic relations beyond currency
to include easier access for U.S. firms to Chinese banking,
investment and other financial services industries.

Still, nearly every question at the news conference dealt
with U.S. efforts to get China to adopt a more flexible
currency.

Snow said Washington had no timetable for China to act but
said the long-term goal was a freely floating Chinese currency.

“The real objective is to see the Chinese currency
eventually be fully flexible, eventually to move like the
dollar and the euro and other fully floating currencies,” he
said.

The treasurer of the Asian Development Bank, Mikio
Kashiwagi, said its pioneering launch this month of
yuan-denominated “panda bonds” in the domestic market was a
step in the reform process.

“The only room for discussion is the pace, how fast it
should go. There, you know some people are more patient than
others,” Kashiwagi told reporters. “I think things are very
much on track … they have their own very responsible chart.”

Snow declined to say whether the encouraging signs he had
heard from Chinese officials made it less likely that China
would be named a currency manipulator in next month’s report.

“I don’t want to foreshadow what we will conclude,” Snow
said. “You know what we said last time and we’re going to
continue to look for signs of real progress.”

In May, the Treasury warned that China likely would be
named a manipulator if it did not amend its currency regime.
Beijing’s dropping of its currency peg and modestly revaluation
came two months later.

“We will continue to look hard at the situation and try and
evaluate whether or not sufficient progress is being made,”
Snow said.

(Additional reporting by Scott Hillis)