China stands pat on yuan
Makes no promises to US on changes
BEIJING -- Brushing off American pressure for a freer currency, China's premier offered US Treasury Secretary John Snow no promises yesterday and reiterated his assertion that a stable yuan benefited both nations.
The outcome of Snow's two-day trip to Beijing offered little concrete hope for manufacturers in the United States and elsewhere, who believe the yuan is being deliberately undervalued to keep China's exports competitive. China says it's simply good financial sense for all involved.
While saying he had been assured that progress would come, Snow indicated the Chinese offered no timetable and wouldn't likely be moving soon.
"I was repeatedly assured that interim steps are being taken and there will be further progress," Snow told reporters.
State media said Premier Wen Jiabao told Snow that freeing the yuan remained China's ultimate goal, but that changes would happen only when the economy was ready.
"Maintaining the stability of the exchange rates of the yuan benefits both China and the United States," Wen was quoted as saying by the official Xinhua News Agency.
"This system accords with China's reality," he added.
Despite its huge role in global trade, China is the largest economy whose currency isn't traded on world markets.
The yuan -- also known as the renminbi, or "people's money" -- has been fixed at about 8.28 to the US dollar since 1994. It is allowed to fluctuate, but only in tiny increments -- a fraction of 1 percent -- and in closely regulated trading by official agents.
Last month, the US National Association of Manufacturers said that official rate was 40 percent too low and gave Chinese exporters an unfair price advantage in the US market.
Chinese economists, however, say the country can't afford to set the yuan loose until China's hybrid socialist-market system develops stronger institutions to guard against damaging currency speculation. Such activity crippled many regional economies in the 1997-98 Asian financial crisis.
And while China's foreign trade is surging, unemployment is rising and the financial system is wobbling under a load of bad debts. Those problems could get much worse if a stronger yuan raised costs for exporters and slowed economic growth, Chinese economists say.
"China's economy is in transition, and its market system is incomplete. So you can't just let the rate be set by the market," said Li Qingyun, an economist at prestigious Peking University.
Li also disputed claims that the weak yuan was responsible for China's export competitiveness, citing China's low labor costs and cheap overhead. Imports from the United States and elsewhere would rise once scheduled tariff cuts go into effect, he said.
In the meantime, Li said, preferential policies for US goods could be instituted to reduce political pressure on China to allow the yuan to rise.
"Full trading is the goal," he said, "but the conditions now aren't ripe."
Strict controls keep most dollars, yen, and other foreign currencies that flow into China from leaving the country. The government has piled up more than $350 billion in foreign reserves -- a figure Chinese officials cite as a buffer against fiscal crisis.
Although they've offered no timetable for freeing the yuan rate, Chinese leaders have been easing controls on the movement of money to help businesses and guard against the rise of the yuan.
