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China Promises to Relax Currency Controls, says US Official - 2003-09-03

Treasury Secretary John Snow says China has promised to eventually relax controls on its currency, but Chinese officials are giving no timetable.

At the end of his meetings with Chinese officials, Treasury Secretary John Snow suggested that no new ground has been broken in U.S. efforts to get China to end strict currency controls, but he described the discussions as good.

"We are laying out our point of view," said Mr. Snow. "And they are listening and responding. I think we are going to make some progress on this issue."

In remarks carried by the official Xinhua news agency, Chinese Prime Minister Wen Jiabao says he told Mr. Snow that Beijing's currency controls benefit both China and the United States. But Mr. Wen did not indicate how.

Chinese leaders have all along said they will eventually allow the country's currency, the yuan, to trade freely. Officials repeated that to Mr. Snow, although they did not give a timeline.

There is growing political anger in the United States about China's fixed exchange rate. Labor groups and manufacturers say an artificially weak currency makes Chinese-made goods unfairly cheap and steals jobs from Americans.

The U.S. trade deficit with China is more than $100 billion. During his visit to Beijing, Mr. Snow called the deficit "unsustainably large," indicating that Washington's patience on the issue could eventually wear thin.

Chinese officials say a stable currency has been key to the country's economic growth, and they say now is not the time to relax currency controls. They warn that doing so now could be destabilizing, increasing unemployment and possibly triggering a banking crisis. Chinese banks are struggling, due to a large number of non-performing loans.

Andy Rothman, a financial analyst in Shanghai with CLSA, an investment bank, said it appears it is not in the United States' interest to push the Chinese too hard. "I think that they have decided it would be too risky for them to make that change while the banks are in serious trouble and they are also facing some of their own economic problems," said Mr. Rothman. "I think Treasury Secretary Snow is implicitly agreeing with the Chinese."

Sources say that China's leaders are prepared to offer other concessions to appease Washington. These could include cutting incentives for exporters, purchasing more U.S. bonds, and loosening controls on currency holdings.

Beijing was the second stop of Mr. Snow's three-nation Asian tour, which began in Japan. His last stop is Thailand, where he is to attend a meeting of the finance ministers of the Asia Pacific Economic Cooperation group.