Showdown looms as Chinese currency comes under US scrutiny

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WASHINGTON, June 13 (AFP): A US-China showdown looms as US lawmakers unveil legislation today designed to pressure China to revalue its currency that could draw tit-for-tat measures from Beijing.
As the Democratic-controlled Congress ups the ante over the currency dispute, US President George W Bush's administration is expected, also today, to let China off the hook over charges it is manipulating the yuan.
The Bush administration agrees the yuan is undervalued and fuelling the burgeoning US trade deficit with China but is unlikely to brand the Asian giant a currency manipulator in a US Treasury semiannual report on global exchange rate policies to Congress, experts said.
"I think everybody expects the Treasury is not going to cite China as a manipulator," said Nicholas Lardy, a China expert at the Washington-based Peterson Institute of International Economics.
Branding China a manipulator would compel the United States to introduce formal procedures to negotiate with China over the yuan's exchange rate, which some US experts say is undervalued by up to 40 per cent.
Any decision to let China off the hook is expected to draw the ire of Congress, where four senior senators from both sides of the isle have vowed to unveil Wednesday a bill to address the impact of the undervalued yuan.
The senators "will discuss the new US responses their bill requires when other nations, including China, unfairly undervalue their currency," a statement from the powerful Senate Finance Committee said, without giving a clue on the proposed legislation.
"Fundamentally misaligned currencies distort global markets and put US manufacturers and farmers at a competitive disadvantage," said the panel, which has jurisdiction over US trade policy.
Beijing has warned of repercussions if any legislation imposes penalties on China over its currency.
But "the US Congress could pass this legislation which will lead to the problem of higher tariffs on Chinese goods... If this happens then the Chinese departments concerned will make a response," Chinese foreign ministry spokesman Qin Gang said in Beijing this week.
Some lawmakers have proposed trade sanctions against China, including a possible 20 per cent across-the-board tariff on Chinese goods.
China's undervalued yuan against the US dollar makes US-bound exports cheaper and has led to the loss of about three million American manufacturing jobs, a record-high US trade deficit, at 232.5 billion dollars last year, and undermined overall US competitiveness, lawmakers say.
"The United States stands to benefit greatly from China's booming economy and growth, but the current conditions of this relationship are hurtful to the US, not helpful," said Democratic Senator Chris Dodd.
Dodd, chairman of the Senate Banking Committee, another powerful panel, said he would join hands with Republican Senator Richard Shelby to introduce legislation that would tighten the definition of currency manipulation.
It would spell out a "clear process" for actions to be taken if a country is found to manipulate its currency.
In the last Republican-dominated Congress, several lawmakers introduced a bill to slap punitive tariffs on Chinese imports if it did not revalue its currency.
The bill surprisingly won two-thirds support in the Senate in a procedural vote. But it was held back to give Beijing time to undertake currency reforms.
Meanwhile, China urged the United States today not to politicise an increasingly heated row over the value of its currency, while also lashing out at Washington for raising tariffs on Chinese paper imports.
"Any move to politicise the issue will not be conducive to resolving the problem," commerce ministry spokesman Yao Hongshen said referring to imminent US legislation aimed at forcing Beijing to revalue the yuan.
"Both parties should handle problems emerging from the development of bilateral economic and trade relations based on the principles of mutual respect and equal consultation... and taking into consideration concerns of both parties."