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China Studies Possible Readjustment of Currency

  • Luis Ramirez

Yuan bank notes

Chinese officials have brushed off pressure from the United States and Europe to change its currency regime and to slow the rapid expansion of its textile exports.

Chinese Commerce Minister Bo Xilai, speaking at a gathering of business people in Beijing Wednesday, called the U.S. and European Union positions unfair.

He said they were taking protectionist actions against China instead of resolving problems in their own economies.

Chinese banking officials on Wednesday also lashed out at news that the U.S. Treasury Department warned that China could be labeled a manipulative trading partner unless it took steps toward scrapping its currency peg. The officials repeated that China plans to reform the currency at a slow pace that does not damage the country's fragile banking system.

The United States and the European Union for the past few years have pushed China to remove or relax its currency peg of about 8.2 yuan to the dollar. U.S. politicians say the peg makes Chinese products artificially cheap, hurting American manufacturers and costing thousands of U.S. jobs.

However, Paul Coughlin, managing director for Asia at the Standard and Poors financial ratings agency, says an artificially cheap yuan can also hurt China in part because it threatens trade relations with the United States.

"The Chinese acknowledge they need to change," he said. "I think where there isn't a consensus, either within China or between China and America, is really what exactly should happen (or) what the extent of the change should be."

Mr. Coughlin and other analysts say China may choose an option that would only modestly adjust the exchange rate, such as pegging the yuan to a basket of currencies.

Prime Minister Wen Jiabao on Monday said currency reform is a matter of sovereignty and he said China would not bow to foreign pressure to change the decade-old peg.

China is also fighting pressure from the United States and the European Union over its textile exports, which have surged since the lifting of worldwide quotas on January 1.

The Bush administration has announced limits on some items entering the United States. EU officials this week have complained that Chinese textile imports have hurt EU manufacturers, and suggested containment measures might be considered.