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Sen. Shelby questions China currency progress

Posted on: Wednesday, 1 February 2006, 16:28 CST

By Mark Felsenthal

WASHINGTON (Reuters) - The chairman of the Senate banking committee on Wednesday questioned whether China has truly made progress toward currency flexibility in spite of assurances from the White House that recent steps by Beijing constitute forward movement.

"I question, myself, some of the assertions that China's really improving, that they're not manipulating their currency," Alabama Republican Sen. Richard Shelby told Reuters in an interview.

Lawmakers and manufacturers say China keeps the value of its currency lower than market value to boost exports to American consumer markets.

The Treasury Department declined to designate China as a currency manipulator in a recent report to Congress, citing a July move by Beijing to revalue the yuan upward by 2.1 percent.

However, the yuan currency has moved only slightly since then.

Shelby acknowledged there are difficulties in pressuring Beijing to let the yuan trade more freely on currency markets.

"I realize the political and probably some economic implications of a tough, tough, tough policy with China dealing with their manipulation of currencies," said Shelby.

The Treasury Department and other policy makers have warned that threats against China over currency issues could be counterproductive and that trade sanctions could damage U.S. economic interests.

But Shelby said the yawning U.S. trade deficit with China is a cause for lingering concern and invites scrutiny of China's currency regime.

"Diplomacy's always better than the alternatives, but I think the Chinese are very smart and have learned a lot from the Japanese in areas of manipulation of currency. So I have some concerns," Shelby said.

Treasury is required by law to report to Congress twice a year on whether trading partners manipulate their currencies to gain an unfair advantage in trade with the United States.

The report provides administration officials with grounds to pressure China to take steps to show movement toward currency flexibility to avoid being cited.

Treasury has said it wants to broaden the currency report to better reflect nuances in a country's currency regime.

Source: REUTERS

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