The Bush administration welcomed China's move toward a more flexible currency today, but the move raised almost as many questions as answers.

Treasury Secretary John W. Snow called it "the start of an awfully important process" that could in time relieve a major source of political tension between the United States and China.

"It is very positive," Mr. Snow told reporters this morning. "I am particularly struck by the commitment of the Chinese government to get their currency into alignment with market forces."

But administration officials admitted that they did not know whether the move would be the first step toward a major change or a token effort aimed at defusing American critics.

American officials said they did not know precisely how China will carry out its new approach, which calls for the Chinese yuan to be valued against a basket of other currencies.

The statement by China's central bank opened the possibility of a gradual but steady rise in the value of the yuan over the next several months. But Chinese leaders also left themselves the opportunity to prevent anything more than a token adjustment.

In Congress, where Democrats and Republicans alike have been fuming about a wide range of trade issues with China, it was far from clear that the surprise announcement would be enough to defuse tensions.

Senator Charles E. Schumer, Democrat of New York and co-sponsor of legislation that would threaten China with steep tariffs if it did not change its currency policy, adopted a wait-and-see attitude.

"It is smaller than we had hoped but to paraphrase the Chinese philosophers, a trip of a thousand miles can well begin with the first baby step," Mr. Schumer said. But he added: "If there are not larger steps in the future, we will not have accomplished very much."

China's currency policies, which have pegged the yuan at a fixed exchange rate to the dollar for more than 10 years, are the most visible but hardly the only source of economic tension with the United States.

With the United States building up a trade deficit with Chinas that could exceed $180 billion this year, anti-China sentiment in both parties is so high that even ardent free-trade advocates are prepared to vote for new restrictions.

But most of the other issues are murkier and more difficult to sort out. They range from major disputes about enforcement of anti-piracy laws for technology, movies and music to rules governing investment in China.

"The overwhelming sentiment of the nation, which is reflected in Congress, is that we should be taking a more aggressive stance and holding China accountable to world trading standards," said Representative Ben Cardin, Democrat of Maryland and a leading point-man for House Democrats on trade issues.

Mr. Cardin dismissed China's announcement today as "inadequate" and predicted it would have little have little impact on political sentiment in Congress.

C. Fred Bergsten, president of the Institute for International Economics, a policy research organization in Washington, said Chinese leaders were hoping to defuse as much tension as possible with as little change as possible.

"My guess is they are trying to see the minimum they can get away with," Mr. Bergsten said, noting that China faces both political pressure as well financial pressure from global currency markets.

"My own sense, based on historical experience, is that this won't do anything to reduce either kind of pressure, and in fact it might increase both kinds of pressure."

China's currency peg has been a lightning rod for other complaints about China, even though economists are divided about whether it has much impact on the United States competitive position.

Many economists estimate that the yuan is at least 15 percent undervalued against the dollar, which if true makes Chinese exports even cheaper for Americans than they would be otherwise.

The Bush administration, under heavy pressure from American manufacturers, has been goading Chinese leaders toward a more flexible exchange rate for more than two years.

The immediate change is by all accounts inconsequential: an upward revaluation of the yuan by 2.1 percent.

But China's central bank also said outlined a process by which it might allow the yuan to rise as much as .3 percent each day. In its statement, the People's Bank of China said the yuan would be allowed to fluctuate as much as .3 percent against the dollar each day.

In a potentially major change, the central bank said it would announce the closing price of the yuan at the end of each day and then make that price the "central parity" for trading on the following day.

Taken literally, that could mean the dollar could be in for a long slow decline in value against the yuan that would make Chinese products more expensive and American exports cheaper.

But it remains unclear if the central bank will allow that to happen, and Bush administration officials admitted today that they did not know.

(courtesy of the New York Times)

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