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China Faces International Pressure to Free Exchange Rate


China faces growing pressure to re-value its currency, with the International Monetary Fund urging Beijing to remove strict controls on its exchange rate.

Hort Kohler, the head of the International Monetary Fund, says China should move toward a more flexible currency system. His comments in Beijing coincided with a visit by Treasury Secretary John Snow, who arrived in Beijing with a mandate to call on the Chinese to raise the value of their currency.

For nearly 10 years, China has pegged its currency, called the yuan, at a rate of about 8.3 to the dollar.

Some American politicians argue the peg makes Chinese products artificially cheap and cheats Americans out of jobs.

Foreign Ministry spokesman Kong Quan said Beijing has no immediate plans to change its policy. Mr. Kong says China has dealt with such pressure in the past, such as during the 1997 Asia financial crisis. He says China will continue to keep a stable currency.

Chinese officials have said they want to lift currency controls in the long term, but have no intention of doing it now.

Japan is leading the drive to re-value China's currency. In the United States, it has become a much-talked-about issue in the campaign for next year's presidential elections, with politicians pointing to high unemployment in the manufacturing sector.

Some Western economists say China would be wise to shrug off the pressure to re-value.

Steve Hanke, an economist at Johns Hopkins University, in the United States, says the Chinese economy is one of the few in the world that is growing, and that is due to its productivity and vast exports. He said China should not be forced to stunt its growth.

"I can assure you that most of the people talking about appreciating the exchange rate literally do not know what they are talking about," said Mr. Hanke. "I mean these are political people making these demands. The only reason they are making these demands is that somehow they think they are losing manufacturing jobs simply because China is competitive on an exchange rate basis."

Other analysts argue that a stronger yuan could cut the earnings of U.S. and other foreign companies making products in China. And, they warn it could trigger a crisis across the region if speculators then drove up the value of currencies in smaller Asian countries. The prices their exports would go up, the analysts say, threatening the growth of weak economies.

But other analysts agree with the IMF, which says a flexible exchange rate could help China better manage its interest rates and monetary system, and ward off external financial shocks.

Treasury Secretary Snow is to meet with Chinese officials Wednesday before continuing on his three-nation Asian tour. The trip began in Japan. The last stop is Thailand, where he will attend a meeting of the finance ministers of the Asia Pacific Economic Cooperation group.

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