China Told by US to Revalue Renminbi by 10%

Original Publication Date: 
23 May, 2005

http://news.ft.com/cms/s/69e55622-cbc3-11d9-895c-00000e2511c8.html

WASHINGTON -- The US Treasury has told the Chinese authorities thatthey must revalue their currency by at least 10 per cent against thedollar to prevent protectionist legislation in the US Congress.

Henry Kissinger, former US secretary of state, is one of a number ofunofficial envoys who have impressed upon China the urgent need foraction on the 10 per cent target, and on the seriousness of thethreat from Congress, people with familiar with the administration'sefforts said.

As well as the minimum 10 per cent target revaluation, Dr Kissingerwas briefed by the Treasury on the need for other measures, such asa shift to a currency band against the dollar or a basket against anumber of currencies to replace the peg.

Bill Rhodes, senior vice chairman of Citigroup, and Brent Scowcroft,who was national security adviser to President Ford and PresidentGeorge H. W. Bush, have also acted as unofficial envoys on behalf ofthe present administration.

Mr Kissinger and Mr Scowcroft were not immediately available forcomment. Mr Rhodes declined to comment on talks with Beijing butsaid: 'Apart from any external pressure, I think that it is inChina's own interest in the coming months to move toward a market-based interest rate regime, accelerate the opening of the capitalaccount, and move to a more flexible exchange rate system.'

Tony Fratto, US Treasury spokesman, refused to comment on the 10 percent minimum target. 'We have made it clear that the interim stepshould be of sufficient magnitude and flexibility to quellspeculative financial flows,' he said. 'Without commenting onparticular individuals, I would say that it is important for theChinese authorities to hear from respected individuals who canprovide an accurate analysis of the American political environmenton this issue.'

There was a marked shift in the Treasury's strategy ahead of lastmonth's meeting of the Group of Seven leading industrial countries,with talk of the need for currency flexibility replaced by the callfor urgent action.

The administration has been spurred by concern over a billchampioned by Charles Schumer, Democratic senator, that would imposetrade sanctions if China does not act within six months.

When John Snow, Treasury secretary, released the department's reporton trade and exchange rates last week, he said that the Treasury hadcalled for currency flexibility and that an interim step was needed.

The message was that China needed to act within the next six months.A senior administration official said at the time that a 5 per centrevaluation would not be enough.

Alan Greenspan said on Friday in response to a question at theEconomic Club of New York that a notional 20 per cent revaluation ofthe renminbi would have little impact on the US trade balance.

Many experts on China say that the increased pressure from theUnited States may make it harder for the Chinese authorities to takeaction, and in particular for those who favour a shift in thecurrency regime to win the argument in Beijing.