China eases cur­rency con­trols on yuan be­fore trade talks with U.S.

Los Angeles Times - - Business -

bei­jing — China took steps Fri­day to let its cur­rency trade more freely against the dol­lar and to cool its siz­zling econ­omy ahead of talks in Wash­ing­ton over Bei­jing’s soar­ing trade sur­plus.

China eased con­trols on the yuan amid pres­sure from the U.S. and Europe, but cau­tioned against ex­pect­ing sharp in­creases in its value. The U.S. re­sponded that Bei­jing was not mov­ing fast enough to al­low its cur­rency to strengthen and help re­duce its grow­ing trade gap.

The Chi­nese gov­ern­ment also raised in­ter­est rates for the sec­ond time in just over two months and tight­ened bank credit to slow its econ­omy.

Amer­i­can of­fi­cials are push­ing Bei­jing to raise the yuan’s value in hopes that will help cut the multi­bil­lion-dol­lar U.S. trade deficit with China by mak­ing Chi­nese goods more ex­pen­sive.

In the latest change, the yuan will be al­lowed to fluc­tu­ate against the dol­lar by 0.5% a day, up from 0.3%, the cen­tral bank an­nounced. Still, the bank said it would keep the yuan — also known as the ren­minbi, or “peo­ple’s money” — “ba­si­cally stable” to safe­guard eco­nomic sta­bil­ity.

“It does not mean that the RMB ex­change rate will see large ups and downs, nor large ap­pre­ci­a­tions,” the bank said on its web­site.

The move comes as se­nior U.S. and Chi­nese of­fi­cials pre­pare to meet in Wash­ing­ton next week to dis­cuss China’s trade sur­plus, prod­uct piracy and other con­tentious is­sues.

Crit­ics say Bei­jing keeps the yuan un­der­val­ued, giv­ing its ex­porters an un­fair price ad­van­tage and swelling its trade sur­plus with the U.S. to $232.5 bil­lion last year. Some Amer­i­can law­mak­ers want puni­tive ac­tion against China if it fails to move quickly on the yuan.

The U.S. gov­ern­ment re­acted cau­tiously to Fri­day’s an­nounce­ment.

“The Trea­sury’s view is that this is a use­ful step to­ward an even­tual float,” said Alan Holmer, Pres­i­dent Bush’s spe­cial en­voy for China. “The ad­min­is­tra­tion takes the is­sue of the cur­rency very se­ri­ously.”

Bei­jing reval­ued the yuan against the dol­lar by 2.1% in July 2005 and has let it rise an­other 5.3% since then in tightly con­trolled trad­ing.

“That is not fast enough as far as the ad­min­is­tra­tion is con­cerned,” Holmer said.

Ger­many, Europe’s big­gest econ­omy, wel­comed the change.

“That is a pos­i­tive sign,” Ger­man Fi­nance Min­is­ter Peer Stein­brueck said.

Chi­nese of­fi­cials say the coun­try needs a more flexible ex­change rate to ease the strains of its huge, ex­port-driven in­flows of money.

They say even­tu­ally they will let the yuan trade freely on world mar­kets. But they in­sist that drop­ping con­trols too quickly could dam­age frail Chi­nese banks and fi­nan­cial in­dus­tries, caus­ing eco­nomic tur­moil.

Com­mu­nist lead­ers also are wor­ried that a stronger yuan might hurt ex­port-de­pen­dent Chi­nese pro­duc­ers of toys, tex­tiles and other goods, boost­ing un­em­ploy­ment and fu­el­ing so­cial ten­sions.

Eu­gene Hoshiko As­so­ci­ated Press

CHI­NESE CUR­RENCY: U.S. of­fi­cials are push­ing Bei­jing to raise the yuan’s value, hop­ing that will re­duce the multi­bil­lion-dol­lar trade deficit with China by mak­ing Chi­nese goods more ex­pen­sive.

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