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Last Updated: Tuesday, 2 September, 2003, 16:05 GMT 17:05 UK
China defiant on currency rate
The yuan could be 40% undervalued, some say
China's central bank has ruled out a revaluation of its currency despite a visit from the US Treasury Secretary John Snow.

Following his meeting with officials from the central bank and finance ministry on Tuesday, Mr Snow said it was "critical" that China moved to a "flexible currency".

Mr Snow is touring Asia and is concerned at the level of the yuan, which is pegged to the dollar at a rate that boosts China's competitiveness in world markets.

The US is concerned that an artificially low value for the Chinese yuan is hurting US manufacturers which struggle to compete with cheap Asian imports.

No change

Shortly before Mr Snow arrived in Beijing, China's central bank ruled out any change in its policy.

The stable exchange rate of the renminbi [yuan] is conducive to the economic stability and development of China, Asia and the world
Kong Quan
Foreign ministry spokesman
"There won't be any change in the exchange rate just because someone is visiting China," a spokesman for the People's Bank of China told Reuters news agency.

The comments were reiterated by a spokesman from the Foreign Ministry.

"China will continue to maintain the stable situation of its foreign exchange rate," said spokesman Kong Quan.

"The stable exchange rate of the renminbi [yuan] is conducive to the economic stability and development of China, Asia and the world," Mr Kong told a news conference.

But Mr Snow said he told officials that it was in China's own interest to have a more flexible exchange rate.

"It's critical that they move to a flexible currency because one sure way to build in adjustment problems in an economy... is to have open capital flows and a rigid exchange rate," Reuters reported Mr Snow as saying.

"We expressed our view that it is in China's interest to have a more flexible currency system and it's in their interest to continue the process of opening up capital flows, in and out, reducing their controls on capital."

Japanese pressure

China has fixed the yuan at about 8.28 to the dollar since 1994, with only limited fluctuations allowed.

John Snow with Japanese prime minister and finance minister
The Japanese support Mr Snow's plea to China
Many economists argue that China should allow the yuan to float freely on international markets, or at least should rethink the value of its dollar peg.

In Tokyo on Monday, Mr Snow and Japanese Finance Minister Masajuro Shiokawa said they agreed to encourage, but not pressure, China to let its currency appreciate.

"I agreed with Secretary Snow that China should let the yuan float," Mr Shiokawa said, following their meeting.

US campaigners increased pressure on Mr Snow as he started his trip, with about 80 groups saying they may demand an investigation into China's currency policies that could lead to trade sanctions.

Election issues?

Last week, the US National Association of Manufacturers (NAM) argued that the dollar was 15% overvalued, and particularly blamed the cheap yuan for causing job losses in American factories.

The NAM said the 8.3 peg was up to 40% undervalued, giving China's exporters an unfair advantage and making its imports expensive.

From China's point of view, however, the competitiveness of China's yuan has helped foster the environment that has helped it become the world's fastest growing manufacturing base.

And the China Daily said the US complaints were motivated by the need to kickstart the US economy ahead of next year's presidential elections.

The BBC's Susie Salmond
"For Mr Snow it is a question of balance - putting gentle pressure on Tokyo and Beijing"

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