People's Bank of China Governor Zhou Xiaochuan,
under pressure from American officials and lawmakers to reduce his country's
record trade surplus, said China plans to further increase flexibility in the
yuan's exchange rate.
"We will continue to follow the three principles of exchange-rate reform and
increase the flexibility of the yuan," Zhou told reporters before entering the
second day of talks between U.S. and Chinese economic leaders in Washington.
China last week increased the amount it lets the yuan move against the dollar
and raised interest rates to cool growth and a swelling trade surplus. U.S.
lawmakers said the steps weren't enough to forestall legislation to punish China
for maintaining what many charge is an artificially cheap yuan to stoke exports.
US Treasury Secretary Henry Paulson spoke with his counterpart Vice Premier
Wu Yi late into the night on May 21 on China's exchange rate, Labor Secretary
Elaine Chao told reporters Tuesday.
The yuan is now allowed to rise or fall 0.5 percent a day compared with a
daily fixing rate against the dollar. The currency closed at 7.6530 Wednesday in
Shanghai, its strongest against the dollar since China abandoned a strict peg in
Paulson said in opening the Strategic Economic Dialogue talks in Washington
Tuesday that Americans are "impatient" and that the negotiations must produce
results that cool "anti-China" sentiment. Wu responded that "politicizing trade
issues would only complicate and seriously damage bilateral trade relations."
China has tried its best in reforming the currency, People's Bank's Zhou told
reporters Wednesday after a meeting between Chinese economic officials and the
House Ways and Means Committee. "I think the current reform of the exchange rate
regime and the flexibility is going well," Zhou said.
Zhou said U.S. lawmakers and Chinese officials agreed Wednesday on the
direction of yuan's reform, while disagreeing on the speed of the change. The
U.S. congressmen "think we can accelerate it, but we think it's already moving
fast enough and we have tried our best," Zhou said.
Chinese Premier Wen Jiabao has outlined three guiding principles for adapting
China's exchange-rate policy: "independent initiative, controllability and
gradualism." The yuan has gained 8.1 percent against the dollar since July 2005,
less than the 12 percent gains in currencies such as the South Korean won and
Zhou admitted Wednesday that his bank is under domestic pressure to slow the
yuan's appreciation. "Domestic exporters and some sectors think we are moving
too fast. They want us to be a little slower," he said.
China's government is concerned about the negative affect a faster yuan move
could bring to low-value domestic manufacturers, exporters and farmers. Yuan
gains between 5 percent and 10 percent will put 3.5 million workers in the
non-farm industries out of jobs, affecting more than 10 million farmers, the
Beijing-based Mirror reported on May 9, citing a report by the Ministry of Labor
and Social Security.
Democratic Representative Sander Levin, of Michigan, who chairs the trade
panel of the House Ways and Means Committee, said the yuan is undervalued by as
much as 40 percent. He said China hasn't used the flexibility in the yuan so far
to let it appreciate sufficiently.
"We want to keep the heat on" China, Levin said in an interview Wednesday.
"We can't wait, they need to act now" to let the yuan climb against the dollar,