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Last Updated: Wednesday, 13 June 2007, 15:43 GMT 16:43 UK
US rejects China currency charge
Worker at a textile factory in China
US producers say cheap Chinese goods are damaging their industry
The US Treasury has refused to describe China as a currency manipulator in its twice-yearly report on exchange rate policies, as political pressures grew.

A group of influential Democrat and Republican Senators now plan to unveil legislation to force China to revalue its currency, threatening tariff hikes.

The lawmakers say China keeps its yuan much weaker than it should be to boost exports at the expense of US firms.

But the US government said it could not be sure whether this was the case.

In the report, the Bush administration said that China did not meet the technical requirements of a country that is manipulating its currency to gain unfair trade advantages.

It noted the heavy intervention by China's central bank to keep its currency from rising too fast, and the effect this has had on the accumulation of foreign exchange reserves, which now stands at more than $1 trillion (500bn).

Tougher stance

But, as expected, the Treasury said it was unable to determine that China's exchange rate policy was carried out for the purpose of gaining unfair competitive advantage in international trade.

This has prompted two separate bi-partisan groups of senators to discuss introducing legislation to enable the US to take a tougher stance on China's currency policy.

US manufacturers say their country's stance has been kept deliberately weak to boost exports, which threatens US jobs.

One group, including Senate Finance Committee chairman Max Baucus, was due to release details of a bill designed to "address undervalued currencies that harm US trade and economic interests" on Wednesday.

Any move to politicise the issue will not be conducive to resolving the problem
Commerce Ministry spokesman Yao Hongshen

"Fundamentally misaligned currencies distort global markets and put US manufacturers and farmers at a competitive disadvantage," said the statement by the group, which also includes Senator Grassley, the ranking Republican on the Finance Committee, which oversees trade policy.

Another group of Senators is planning to give new powers to the Treasury to challenge China's currency practice.

Floating yuan

The US Treasury has been coaxing China to move to a more flexible market-orientated exchange rate policy for the past two years since China relaxed its fixed exchange-rate policy which linked the yuan to the US dollar.

Since then, it has floated against a basket of currencies, including the dollar.

Treasury Secretary Henry Paulson says the best way to get China to move faster was "through direct discussions and negotiation, not through legislation."

Over the past 12 months the yuan has appreciated just 4.8% against the dollar, while the British pound has appreciated 7.1% against the greenback over the same period.

China recently announced that its trade surplus had increased by 73% to $22.5bn (11.4bn) in May.

Chinese officials hit back at threats to introduce a bill that could slap punitive tariffs on Chinese imports.

"Any move to politicise the issue will not be conducive to resolving the problem," said Commerce Ministry spokesman Yao Hongshen.

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