US Treasury Secretary Henry Paulson said on Wednesday that he was pushing China to speed up its move toward greater currency flexibility, but said he wants to achieve more than that in the next two years.
"My goal is to make significant progress toward a fully market-determined, floating Chinese currency," Paulson said in prepared remarks to the Senate Banking Committee, where he was testifying about Treasury's semi-annual currency report.
The last report, issued just before Christmas, had again declined to name China a currency manipulator, angering many legislators who said China keeps its yuan currency undervalued to gain unfair advantage in trade with the United States.
"China does not yet have the currency policy that we want it to have and that it needs," Paulson conceded. "We are actively pressing the Chinese to introduce greater currency flexibility and undertake wider market reforms."
As the hearing opened, committee chairman Sen. Chris Dodd said there has been "a dislocation of America's manufacturing base" as jobs are lost to China, and said analysts estimate China's yuan was undervalued by between 15 and 40 percent.
Paulson, who took over Treasury last July, tried to make the case that a so-called "strategic economic dialogue" established between China and the United States last year was a strong forum for currency and other economic reforms.
He said that, at its first meeting in Beijing in December, he had warned Chinese leaders that they were not moving rapidly enough in letting their yuan currency rise in value, which might help reduce huge US deficits on trade with the Asian giant. The US trade gap with China through 11 months of 2006 - according to the latest data available - hit $213.5 billion, already smashing through the 2005 full-year record of $201.6 billion. It is expected to total $230 billion to $240 billion for all of 2006.
"The Chinese leaders believe there is risk in moving too quickly, when in fact, as I argued to them, the greater risk is moving too slowly," Paulson said. "The international community will run out of patience with China unless the pace of its reform accelerates." Paulson said the strategic economic dialogue, which will hold its second session in Washington in May, was not a scripted ceremony but "a serious, focused discussion of the economic issues that matter most."
He said there were some results in US efforts to persuade China to reform its currency practices, including Beijing's abandoning a long-standing practice of pegging the yuan to the dollar in 2005, when it revalued it upward by 2.1 percent.
Since then, it has gained only another 4.3 percent and many US lawmakers argue it remains at a level that gives Chinese producers an unfair edge in global markets, a point that Paulson tacitly conceded.
"A major objective of my two remaining years as Treasury Secretary will be pressing the Chinese government to advance toward the goal of a renminbi (also called the yuan) whose value is freely set in a competitive marketplace, based upon economic fundamentals," Paulson said.
He said China's currency policy now "impedes the adjustment of international imbalances." Also, he said Beijing must live up to commitments made when it joined the World Trade organisation in 2001 to protect intellectual property rights and open its markets. US companies complain that copyrights are routinely violated by Chinese competitors.
China also should encourage more domestic consumption, rather than relying on exports for growth, which might open more opportunities for foreign companies to sell to increasingly wealthy Chinese consumers.
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