China resists world pressure to increase value of currency

BEIJING -- China, facing growing pressure from the United States, Europe and Japan to raise the value of its national currency, is sending out a somewhat ambiguous response these days: not yet.

For nearly a decade, China has firmly fixed its currency in relation to that of the United States at an exchange rate of about 8.28 Chinese yuan, known domestically as the renminbi, or "people's money," to one dollar.

As China's economy has boomed, economists generally agree, its currency has become undervalued at that exchange rate. But Chinese leaders seem to like it that way, mainly because an undervalued yuan keeps China's goods cheap and its export markets up, thus staving off the unemployment that would go along with a drop in world sales of Chinese-made products.

Countries' complaints

Other countries are complaining, though, and in recent weeks the volume seems to have been turned up several notches, especially in the United States. Both the U.S. Federal Reserve Board chairman, Alan Greenspan, and the Bush administration's Treasury secretary, John W. Snow, suggested recently that China should take steps to strengthen the yuan.

There are also signs that China's money policy could intensify as a campaign issue heading into next year's elections in the United States: A bipartisan group of U.S. senators recently called on Snow to investigate whether China was responsible for "significant job loss" in American manufacturing by keeping the yuan artificially low.

In response, China is rejecting the idea of letting the yuan float -- that is, allowing world financial markets to determine its value. China has offered signs that it may adjust the currency upwards, though presumably not as much as its critics demand, but has not set any timetable for doing so.

"We believe that a stable renminbi exchange rate is not only in the interest of China's economic development but also in the interest of Asia and the world," a Chinese Foreign Ministry spokesman, Kong Quan, said at a recent briefing for reporters in Beijing.

He did say China would "improve the exchange rate mechanism," an apparent indication of an upward revision, but he did not elaborate.

Following those comments, the powerful governor of the People's Bank of China, Zhou Xiaochuan, essentially reiterated the country's long-standing monetary policies in a speech this week. The central bank seeks to keep a tight lid on both exchange and interest rates in the country.

In another indication of Chinese resolve on the issue, British Prime Minister Tony Blair said he had raised the issue of altering the fixed exchange rate in his meetings last week with Chinese President Hu Jintao and Premier Wen Jiabao, but that both men appeared "rather reluctant" to adjust the currency at this point.

Chinese boom time

China's economy, the second-largest in Asia after Japan's, is booming. The outbreak of SARS, or severe acute respiratory syndrome, much as it struck a deep psychological blow across the country and devastated tourism and some other industries, barely made a dent in manufacturing. The nation's economy grew at a bit more than 8 percent in the first half of this year, the biggest gain of any major industrialized country's.

"If China continues to maintain an undervalued currency, it will have a lot of trade conflicts with a lot of countries -- the leaders know that," said Peter So, head of China research at ING Financial Markets, a large Dutch investment firm. The Chinese leaders certainly have internal reasons for keeping things the way they are with the yuan.

Even with the economy growing, some parts of the country are beset by double-digit unemployment. Any strengthening of the currency would make the country's goods more expensive on world markets and almost surely take away jobs.

Treasury Secretary Snow testified on China's currency practices to a Senate banking subcommittee Thursday. He said the administration will have no formal position on the issue until completing a report in October, but added: "I do have a firm view ... we should encourage them in the reports that they are looking at widening the band on the yuan." Snow, touring Midwestern states earlier this week, heard a round of complaints from manufacturers about what they called unfair Chinese competition, and industry trade groups, such as the Coalition for a Sound Dollar, have urged the Bush administration to pressure China to revalue its currency.