China vows fresh steps to take heat off currency

China vows fresh steps to take heat off currency

Reuters, Beijing

China, under persistent U.S. pressure to revalue the yuan,
plans further steps to ease capital controls to help take the
heat off the currency, a senior government official was quoted as
saying.

"We will continue to take a series of positive measures to
loosen, appropriately, control on enterprises keeping their
foreign currency," the Xinhua news agency quoted a senior
official at the State Administration of Foreign Exchange as
saying.

China and the United States agreed on Wednesday during a visit
by U.S. Treasury Secretary John Snow that the yuan should
eventually float freely, but Beijing insisted it would not be
bullied into acting too fast for fear of worsening unemployment.

U.S. President George W. Bush said on Thursday that China's
currency policy, a key issue ahead of the 2004 presidential
election, was unfair and Washington would "deal with it
accordingly" following the talks in Beijing.

Snow carried to China complaints from U.S manufacturers that
the yuan was too cheap at its current level, giving Chinese
exporters an unfair advantage that was costing U.S. jobs.

China would also "enlarge the sphere of forex supply and
address earnestly the demand for rational use of foreign currency
from enterprises and individuals", an overnight Xinhua report
quoted the unnamed official as saying.

The government would encourage imports to spur industrial
upgrading and help reduce China's trade surplus and slow growth
of its hefty foreign exchange reserves, Xinhua said.

Bush, in an interview with CNBC, said Snow used meetings in
Beijing to "deliver a strong message from the administration that
we expect our trading partners to treat our people fairly -- our
producers and workers and farmers and manufacturers -- and we
don't think we're being treated fairly when a currency is
controlled by the government".

Administration officials are considering how to step up
pressure on Beijing.

Bush could raise the currency issue directly with Chinese
President Hu Jintao. They are expected to meet on the sidelines
of an economic summit in Thailand in October.

"I personally believe the renminbi (yuan) is unlikely to
appreciate by a big margin, no matter in the near term or in the
long term," Wei Jianing, an economist with the Chinese cabinet's
Development Research Centre, told the official Financial News.

But Yu Yongding at the Chinese Academy of Social Sciences told
the newspaper that China should consider a small appreciation of
the currency to show "it is a responsible big country which fully
considers other countries' interests".

Stanford University Professor Ronald McKinnon said on Thursday
that China should disregard outside pressure and keep its
currency fixed to the dollar to escape the kind of domestic
deflationary spiral Japan got sucked into.

Beijing has announced plans to raise the limit on the amount
of foreign exchange travelers can buy from banks from next month
to help ease upward pressure on the yuan.

China has already relaxed foreign-exchange curbs, including
allowing some service firms to retain more forex earnings, and
made it much easier for multinationals to deal in hard currency.

"The Chinese government will not likely allow its currency to
appreciate by a fairly big margin, and instead is seeking to
alleviate mounting pressure from overseas," Xinhua said.

Analysts say China's move to allow more foreign exchange
outflows is based on domestic needs to contain monetary and
unemployment risks rather than a bid to mollify the United
States.