Vote on currency bill set to next week

Updated: 2011-10-08 08:04

By Li Xiang and Tan Yingzi (China Daily)

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Controversial move on renminbi gets US politicians bickering

BEIJING / Washington - The US Senate on Thursday put off the final vote on a currency bill - which could lead to levies on Chinese goods - because of disputes between Republicans and Democrats over amendments.

If passed, the bill would prompt an investigation into whether China was keeping the value of its currency low. It will be put to a vote on Tuesday.

"The delay reflects that US lawmakers have not reached a consensus on whether the currency tool is an effective way to pressure China," said Ding Zhijie, a professor at University of International Business and Economics.

"They are also concerned that it may not be a good time now to embrace a trade war with China given the economic uncertainties in the US and the world," Ding said.

US President Barack Obama on Thursday expressed concerns about the Senate's currency bill, saying that it should be consistent with the United States' international trade obligations.

Nonetheless, Obama accused China of "gaming" the trading system to its own advantage and to the disadvantage of other countries, particularly the US. He said that the yuan has appreciated to some extent over the last year though it has not met the expectation of the US side.

"It is easy for the US to make China a scapegoat of its domestic problems at a time when its economy remains weak with a high unemployment rate and the next general election only 13 months away," said Xu Mingqi, deputy director of the Institute of the World Economy at the Shanghai Academy of Social Sciences.

On Oct 3, the US Senate voted 79-19 to allow a week-long debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would require the US Treasury Department to determine if China is manipulating the renminbi, and if it believed that to be the case then order the Commerce Department to levy taxes on some Chinese goods.

But the controversial bill has run into opposition from the White House and the House of Representatives.

US House Speaker John Boehner on Thursday repeated that passing laws to sanction China for keeping the value of its currency low would be "dangerous" as it could start a trade war with China given economic uncertainties.

The White House also remained cautious about the legislation, with its spokesman Jay Carney saying that the bill could violate international trade rules.

Experts said imposing sanctions on China will not create more jobs in the US and the damage it may cause to the US economy could outweigh any benefits that would accrue from a reduction in trade imbalances.

Chinese analysts warned that the currency issue may be used as an excuse for the US to adopt trade protectionist measures, which would negatively affect trade relations between the countries. "The US Senate's move is to politicize the currency issue and use the currency tool to advance its political will," said Tan Yaling, head of the China Foreign Exchange Investment Research Institute.

Chen Fengying, director of the Institute of World Economic Studies under the China Institutes of Contemporary International Relations, pointed out that the currency bill reflects the fact that the Chinese economy is still overly reliant on exports and China needs to boost the domestic economic driver.

The People's Bank of China on Tuesday responded to the US Senate bill, saying that it will not help resolve domestic issues in the US - such as the trade deficit, low level of savings and high unemployment - but could potentially affect the economy and market confidence.

"The passage of the bill may seriously affect China's currency reforms, potentially leading to a trade war between the two sides," the Chinese central bank said in its statement.

US lawmakers have been threatening China since 2005 with potential legislation to punish Chinese exports with tariffs for holding down the value of the yuan. They believe that the country's huge trade deficit with China, which hit a record $273 billion in 2010, reflects a policy by China to deliberately undervalue its currency.

"China should find ways to deal with the US pressure on its currency policy so as not to let it disrupt the pace of its foreign exchange reform," Ding said.

Senator Orrin Hatch from Utah, ranking member of the Senate Finance Committee, offered an amendment on Thursday stressing a multilateral negotiations approach on the Chinese currency issue.

The US-China Business Council, which strongly opposes the currency bill along with other American business groups, praised Hatch's amendment.

"We understand that Senator Hatch's substitute amendment may be among those considered to the currency legislation before the Senate. Senator Hatch's compromise is a step in the right direction on this issue," said the council's vice-president, Erin Ennis. "As we have said all along, no one disagrees that China needs to move more rapidly toward a market-oriented exchange rate. Our concerns on congressional legislation have centered around the tools used to try to reach that goal. Senator Hatch's proposal to use multilateral negotiations on the issue - an approach that has seen progress on other issues with China - makes sense if we truly want to see this problem addressed."

Analysts said the Senate currency legislation is just a messaging bill with limited practical tools and impact on Chinese currency. Facing the 2012 presidential election, sluggish economic recovery and worrying high unemployment rate, both parties need to show to the US public their determination and efforts to create jobs through the passage of such legislation.

Xinhua contributed to this story.