WASHINGTON: US President Barack Obama`s administration said Wednesday that the Chinese currency remained undervalued despite a pledge by Beijing to relax controls on the yuan following international pressure.
Five days after the Chinese central bank promised to let the yuan trade more freely against the dollar, Obama`s Commerce Secretary Gary Locke said Beijing should allow the yuan to appreciate against the greenback.
"There`s no disagreement that the Chinese currency is undervalued," he told a congressional hearing as he was questioned by senators, who accused China of keeping the yuan low for a trade advantage.
Locke said a yuan appreciation "would do more to help the sale of US goods."
"There`s no disagreement that it is absolutely crucial for appreciation to occur... ," he said as the senators vowed to press ahead with legislation aimed at slapping trade sanctions on China over its currency policy.
Locke was the first senior US official to directly say that the yuan was undervalued since the Chinese decision Saturday to virtually allow the yuan to climb against the dollar after nearly two years.
The Chinese move was widely seen as a bid to head off rancor at this weekend`s G20 summit in Toronto.
US President Barack Obama had called Beijing`s action "a constructive step" but said he wanted the issue to be discussed at the summit. Obama and Chinese leader Hu Jintao will be among leaders from 20 key nations attending the talks.
Locke also said that the US government was reviewing charges by US companies that China was gaining an unfair trade advantage with its currency policy.
His department was "currently reviewing allegations" by two US companies that China’s currency practices constituted "a countervailable subsidy."
"I am carefully monitoring the review of these allegations to determine whether they meet the legal threshold for investigation," Locke said.
"Given the scrutiny that such decisions face in US courts and at the WTO, I want to make sure our decision on whether to investigate is warranted by the facts and the law," he said.
Both China and the United States have pursued cases against each other at the World Trade Organization (WTO).
A Commerce Department ruling that any Chinese advantage via the yuan exchange rate was a trade subsidy deserving of financial relief through import duties could lead to a deluge of countervailing duty cases from US manufacturers.
Unmoved by Beijing`s pledge of limited currency reform, US lawmakers said Wednesday they would press ahead with legislation they said would treat "currency manipulation" as an illegal subsidy and enable US authorities to impose tariffs on Chinese goods.
"We`re fed up and we`re not waiting. Nothing ever changes unless you force the Chinese to act," Senator Charles Schumer from Obama`s Democratic party declared at the hearing.
"The Chinese will keep treating us like they have us on a yo-yo unless we make a serious push for our legislation."
Republican Senator Chuck Grassley called on Obama "to prepare a case against China’s currency manipulation" at the WTO.
The daily movement of the yuan since Monday -- when the markets first reacted on the Chinese announcement -- has been minimally up and down, indicating that Beijing continued to keep a tight rein on the yuan.
In fact, the yuan weakened against the dollar Wednesday.
China made its currency slightly flexible in 2005 and allowed the yuan to appreciate about 20 percent against the dollar.
But three years later, it began to effectively peg the yuan at 6.8 to the dollar to support its exporters reeling from the global financial crisis.
BDST 1315 HRS, June 24, 2010
SIS/DC
