China Warned About Yuan

May 17, 2005
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WASHINGTON, D.C. — The Bush administration warned China on Tuesday it must swiftly overhaul its currency system or face the likelihood of being accused of manipulations to gain an unfair trade advantage — with economic sanctions possibly following that.

The administration has been prodding China in earnest over the last two years to stop linking its currency, the yuan, to the U.S. dollar. Manufacturers and other critics, including Democratic and Republican lawmakers in Congress, contend that China's currency system puts U.S. companies at a big competitive disadvantage and has contributed to the loss of U.S. factory jobs.

On Wall Street, stocks moved sharply higher in late trading after the Treasury Department announcement.

The Treasury Department issued the warning as part of its twice-a-year report to Congress. However, it stopped short of finding that China — or any other major trading partner of the United States — was engaging in unfair currency practices.

"If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation" of currency manipulation, the Treasury Department's report said.

President Bush said Tuesday that China isn't living up to the market-opening promises it made to join the World Trade Organization in late 2001, and he called on China to stop its piracy of U.S. intellectual property, lift barriers that keep American goods and services out of its market.

America is a nation founded on the idea of open exchange and free and fair trade is a win-win for all sides," he said.

The administration said China could be branded a manipulator of currency if the country doesn't switch soon to a flexible exchange system —something advocated not only by the United States but also by other economic powers.

"While China's 10-year-long pegged currency regime may have at times contributed to stability, it no longer does," the Treasury report said. The report called China's currency policies "highly distortionary" and that it poses a risk to, among other things, China's trading partners and global economic growth.

Last month, the Senate voted 67-33 on legislation that would impose across-the-board 27.5 percent penalty tariffs on all Chinese imports into the country unless China changes its currency system. (seeCurrency Manipulation Eyed    

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