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Last Updated: Friday, 6 May, 2005, 15:35 GMT 16:35 UK
China's yuan under fresh pressure
Chinese banknotes
The US is leading the call for yuan revaluation
US Treasury Secretary John Snow has pumped up the pressure on China to loosen its tight hold on its currency.

Beijing has kept the yuan locked at about 8.28 to the dollar for 14 years, amid US and other worries about China's trade surplus and the loss of US jobs.

Chinese and US officials meet on Monday in Washington DC, following speculation of an imminent policy shift.

China has tried to downplay the stories but Mr Snow said China ought to move sooner rather than later.

"It's time" for a revaluation, he told CNBC television in an interview.

China was ready to cope with switching to a more flexible yuan, Mr Snow said, and risked knocking its economy off balance if it did not.

Cold water

His comments come 24 hours after pressure on China at the Asian Development Bank's annual meeting - not only from the US, but from Japan as well.

China should change the peg when the conditions are right for China
Andy Xie, Morgan Stanley

US lawmakers currently have a bill before Congress threatening a 27.5% tariff across-the-board if a revaluation does not come soon, in the face of a 2004 trade deficit with China of $162bn.

His comments also follow a week of speculation that China was ready to shift to a freer floating yuan, which saw the dollar sink.

On Friday, China's vice-finance minister did his best to dampen the expectations.

Li Yong told the ADB meeting that upward pressure on the yuan was largely domestic rather than foreign - and "not so great" in any case.

"I urge [people] not to speculate," he said. "They need patience."

China had first to get its market mechanisms in order, he said, and repair its banking system, burdened with persistent corruption problems and huge bad debts.

Indeed, he cited plans to prop up bank balance sheets by using some of China's $650bn (343bn) in foreign currency reserves, itself the result of bulk-buying US government bonds to help keep the yuan down.

Several of the big banks have already received multi-billion dollar injections as part of China's preparation for a possible sell-off.

'Empty threat'

Despite the lack of movement, some observers remain sure that a decision will come soon.

Analysts at ING believe such a move will come within three months - although they acknowledge they are not in the majority.

In contrast, Morgan Stanley analyst Andy Xie wrote in a note to clients that China should feel no urgency.

"China should change the peg when the conditions are right for China" and not because of external pressure, he said.

And he said talk of tariffs was little more than an "empty threat", given the number of US businesses and jobs which relied on adding value to Chinese imports.

"Any sanction on Chinese imports would hurt the US as badly as China, in my view."


SEE ALSO:
China continues breakneck growth
25 Jan 05 |  Business
2004: China's coming out party
21 Dec 04 |  Business
Yuan adjustment talk 'groundless'
13 Oct 04 |  Business
Yuan pledge ahead of G7 meetings
01 Oct 04 |  Business
China's economy 'still at risk'
26 Aug 04 |  Business


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