CHINA / National

EU backs China's gradual yuan moves
Updated: 2006-04-04 07:36

U.S. Pressure

The U.S. raised the pressure on China last week, with Treasury Undersecretary for International Affairs Tim Adams saying the Chinese government has been "far too cautious" on currency policy and should switch to a more flexible system now.

With congressional elections in November, the U.S. has taken the lead in calling for a currency revaluation in China, which has leapfrogged the U.K. to become the world's fourth- largest economy. Steps so far have "not satisfied the demand of U.S. policy makers," said the commission document.

U.S. Senators Charles Schumer and Lindsey Graham are calling for 27.5 percent tariffs on Chinese imports, though last week they delayed a vote on the proposal until September. Some U.S. analysts predict legislation punishing China for the undervalued currency will pass before the November election.

"There has been more aggressive rhetoric from the U.S., but rhetoric is not going to make the Chinese move faster," said Marios Maratheftis, a currency strategist in London at Standard Chartered Plc, a bank that makes about two-thirds of its profit in Asia. "They're on the correct path with a gradual strengthening of the yuan. Gradual is the key word."

Currency Manipulation

Separately, the U.S. Treasury is considering whether to brand China a currency manipulator for the first time in more than a decade. That ruling may be delayed until after Chinese President Hu Jintao's April 20 visit to Washington, Adams said last week.

The yuan declined to 8.0199 against the dollar Monday in Shanghai, from 8.0172 on March 31, according to data Bloomberg compiled.

European governments have sought to whittle away at China's trade advantages by imposing tariffs or filing complaints at the World Trade Organization. Last month the EU slapped duties on some Chinese leather shoes, following last year's decision to set limits on Chinese clothing imports.

Pushed by French President Jacques Chirac, EU leaders last year considered dropping a ban on arms sales to China. Pressure from the U.S. and a change in government in Germany led the EU to keep the ban in place.

In a rare joint move, the U.S. and EU last month threatened to take China to the WTO for setting tariffs on car parts that raise costs for foreign auto factories in China.
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