China, US to work towards more-flexible yuan: Bush
BEIJING, Nov 20 (Reuters): Washington and Beijing will cooperate towards making the yuan's exchange rate more responsive to market forces of supply and demand, visiting US President George W Bush said Saturday.
China revealed the yuan by 2.1 per cent in July and cut it loose from the dollar so it could float within tightly managed bands. But since then, to Washington's frustration, China has let its currency rise only a further 0.33 per cent against the dollar.
"We'll continue to work with China to help implement its July commitment to a flexible, market-based currency," Bush said at a joint news conference with Chinese President Hu Jintao.
Without giving details, Hu said China would press ahead with the reform of the yuan and 'join hands' with the United States to gradually restore balance in trade between the two countries.
China and the United States removed one of the thorns in the side of two-way trade ties this month when they agreed on curbs on the growth of Chinese textile exports until the end of 2008.
But China's export prowess is rankling with many US law- makers. Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, propose a 27.5 per cent tariff on imports from China -- the degree by which they say the yuan is undervalued -- unless China acts soon.
The two delayed a vote on their bill last week, citing the timing of Bush's visit, but said it would take place by March 31.
According to US figures, the United States had a trade deficit of $162 billion with China in 2005, a gap that is on course to grow to $200 billion this year.
China accounts for about a quarter of the US deficit. But Chinese officials and independent economists say this largely reflects a profound change in manufacturing patterns in recent years to take advantage of cheap Chinese labour.
Goods that in the past might have been exported to the United States directly from, say, South Korea or Taiwan, are now sent to China for final assembly and shipment to the United States.
Wal-Mart Stores Inc. alone, were it a country, would have been the sixth-largest importer of made-in-China goods in 2004.
Economists say western pressure for a much stronger yuan is also self-defeating because about 60 per cent of all Chinese exports are churned out by foreign-owned firms.