Senators back off showdown with China over yuan

WORLD / Wall Street Journal Exclusive

 Senators back off showdown with China over yuan
(THE WALL STREET JOURNAL)
Updated: 2006-03-29 13:48

The Senate stepped back from the brink in its face-off with China over
Beijing's practice of keeping the yuan weak against the dollar.

Sens. Charles Schumer, a New York Democrat, and Lindsey Graham, a
Republican from South Carolina, announced yesterday that they wouldn't
force an immediate vote on a bill that would impose 27.5% tariffs on all
imports from China in retaliation for the alleged advantage that
Beijing's currency policies give to Chinese firms.

Senate leaders had promised Messrs. Schumer and Graham that the full
Senate would vote on their bill by Friday. Both men returned from a trip
to China this month, however, persuaded that Beijing was moving gradually
toward a more flexible exchange-rate policy and that their tariff bill
would disrupt commercial and political relations between the two powers.

Meanwhile, the two top-ranking senators on the Finance Committee,
Republican Charles Grassley of Iowa and Democrat Max Baucus of Montana,
unveiled an alternative bill, which they hoped would drain support for
the more severe Schumer-Graham version. Their bill would leave it up to
the Treasury Department to decide if China deserved retaliation -- and
would offer much milder sanctions.

The committee leaders' bill is intended to strengthen the hand of the
administration of President Bush in negotiating with China over currency
issues without igniting a trade war or disrupting Washington's relations
with Beijing, as many fear the tougher alternative would do.

In July, Beijing raised the official exchange value of the yuan by 2.1%
against the dollar and promised to allow the rate to reflect market
forces. Since then, the yuan has crept up an additional 1%.

Even as Chinese officials reassure visiting U.S. delegations, they have
been careful to avoid the appearance that they are caving into American
pressure.

In newly released comments, China's central-bank governor, Zhou
Xiaochuan, ruled out "shock therapy" to reduce the country's surging
trade surplus with the U.S. "China will only consider to take the
gradualist reform approach," Mr. Zhou said in a March 20 speech
summarized yesterday on the People's Bank of China Web site.

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