Snow says China should change currency system

Martin Crutsinger

Tuesday, May 10, 2005 | 9:42 a.m.

WASHINGTON -- Treasury Secretary John Snow says "now is the time" for China to change its currency system, but there is no indication that the Chinese feel the same sense of urgency.

Snow spoke to reporters after a speech in Connecticut while back in Washington a delegation from China's central bank was holding the fourth in a series of discussions to provide China with technical help in overhauling its currency system.

For the past decade, China has tightly linked its currency, the yuan, to the U.S. dollar. U.S. manufacturers contend this system has undervalued the yuan by as much as 40 percent, giving the country a tremendous competitive advantage over U.S. companies.

While the Bush administration had insisted quiet diplomacy was bearing fruit in getting China to stop linking its currency to the dollar, last month it toughened its rhetoric in the face of a soaring overall trade deficit of $617 billion and a $162 billion deficit with China alone, the largest ever recorded with a single country.

While the administration previously was willing to listen to China's appeals that it needed more time before making the switch, U.S. officials now say China has made all the preparations necessary.

"It clearly is time for the Chinese to act," Snow told reporters following a speech in Hartford. "They've said they want to do it. They've affirmed their commitment to doing it. Now is the time."

But following a three-hour meeting of technical experts from the People's Bank of China at the Treasury, U.S. officials refused to talk about any timetable.

Tony Fratto, a Treasury spokesman, said the discussions -- like the three technical meetings that preceded it -- "brings us closer" to the day when China will introduce flexibility in its currency system.

The other three sessions were held in February, July and September of last year. The talks focus on such issues as central bank operations with a flexible currency and reform of the banking system.

Fratto said the administration's view that enough preparation had been done for China to move immediately to a more flexible currency was one of the issues discussed during Monday's meeting. He refused to say what the Chinese reaction was.

He also said he would not speculate on timetables for China to introduce a more flexible currency system.

Chinese officials have continued to insist publicly that they need more time to shore up the country's fragile banking system so that China's economy will be able to handle the volatility that comes with allowing global currency markets to determine the value of the yuan.

Fratto said the technical working group planned to have the next meeting in Beijing later in the summer. He said such sessions likely would continue even after China began to alter its current fixed-peg to the dollar to help the Chinese manage the transition.