BEIJING—U.S. Treasury Secretary John Snow struck a conciliatory tone Monday on China's sluggish moves toward floating its currency, saying the nation is taking critical steps to erect the scaffolding of a modern economic system. However, he warned China to act quickly to forestall protectionist moves on Capitol Hill.
Snow said he won new commitments from senior Chinese leaders that they're seeking a flexible exchange rate for its currency, the yuan.
The tenor of Snow's remarks indicated that the Bush administration sees little use in pressuring China over the yuan, which some economists believe is undervalued and costing the United States manufacturing jobs.
The Treasury Department earlier this month delayed issuing a report on China's possible currency manipulation until after Snow's visit to consult with senior officials and attend a summit of the Group of 20 industrial and developed nations.
Snow met Monday with central bank chief Zhou Xiaochuan and Finance Minister Jin Renqing. He said they outlined a series of financial and currency reforms that they're designing so that eventually the yuan's value can be adjusted.
"Moving to a truly flexible exchange rate requires a lot of preparatory steps, and China is seriously engaged in taking those preparatory steps," Snow said.
China increased the dollar value of the yuan by 2.1 percent on July 21 and stopped pegging the value to the U.S. dollar, instead linking it to a basket of currencies. But China's exports to the United States keep rising, soaring 26 percent in the first eight months of this year to $130.5 billion. The U.S. trade gap with China this year is likely to far surpass last year's $162 billion.
Snow declined to say whether the two nations had agreed on when China might relax the yuan further.
"A roadmap, I think, would be too grandiose a characterization," Snow said in response to a question at a news conference. "We do have, as the Chinese do, a long list of things that are being worked on."
Snow said Zhou and Jin gave him a rundown of the financial mechanisms they're installing to allow companies to hedge against currency risks before moving further on a flexible exchange rate.
"We recognize that it's going to take some time ... to put in place these devices to allow businesses to deal with currency risks," Snow said, adding that mechanisms "like forwards, options, derivatives" can serve as shock absorbers during financial turmoil.
But he said moves on Capitol Hill to punish China "have some support. We have to acknowledge that."
Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., have proposed a bill that would slap tariffs of 27.5 percent on China's imports, compensating for what they say is an undervalued yuan.
Snow said, "Congress will demand clear movements" from China to forestall the protectionist steps.
America's largest labor federation, the AFL-CIO, urged the Bush administration last week to challenge China more strongly over what it called unfair manipulation of its currency, costing some 2.8 million U.S. manufacturing jobs since the beginning of the decade.
(c) 2005, Knight Ridder/Tribune Information Services.
Need to map