US threatens China over currency

US senators threatening China with sanctions unless it revalues the yuan have said that letting the currency float will solve problems in both countries.

    Undervalued yuan gives China's exports unfair advantages

    The senators, Charles Schumer, a New York Democrat, Lindsey Graham, a South Carolina Republican, and Tom Coburn, an Oklahoma Republican, are in China to discuss the issue.

    Schumer and Graham are authors of a bill that threatens China with a 27.5% tariff on its exports to the US unless Beijing allows the yuan to strengthen significantly against the dollar.

    "We have been made aware of the problems here in China, we're well aware of the problems in America, and we do believe that letting the currency float will help solve the problems, one country needing more consumption and one country needing more investment and production," Schumer said on Wednesday.
          
    The senators met Li Zhaoxing, the Chinese foreign minister, on Tuesday and were to hold talks with Zhou Xiaochuan, the central bank governor, and meet officials from China's main economic planning body, the National Development and Reform Commission, on Wednesday.

    Undervalued yuan
       
    "I am increasingly hopeful that we can find a way to allow the currency to achieve a market value that would be a win-win for the Chinese and US governments," Graham said.
       

    "We have been made aware of the problems here in China, we're well aware of the problems in America, and we do believe that letting the currency float will help solve the problems"

    Charles Schumer, a New York Democrat senator

    "Our resolve to have that occur is greater than ever, but so far so good." 
           
    The Bush administration opposes the Schumer-Graham bill, but it could go to a vote by 31 March, less than a month before China's president makes his first trip to Washington as president.
       
    Many American politicians and manufacturers say the yuan is undervalued, giving China's exports an unfair advantage in trade and widening a trade gap that hit a record $202 billion last year.

    Economists say China's economy relies too heavily on exports and investment and not enough on consumption, while savings rates in the US are too low, causing it to lean on borrowing from overseas to finance spending.

    SOURCE: Reuters


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