China told by US to revalue renminbi by 10%

By Andrew Balls in Washington
Published: May 24 2005

The US Treasury has told the Chinese authorities that they must revalue their currency by at least 10 per cent against the dollar to prevent protectionist legislation in the US congress.

Henry Kissinger, former US secretary of state, is one of a number of unofficial envoys who have impressed upon China the urgent need for action on the 10 per cent target, and on the seriousness of the threat from Congress, people with familiar with the administration's efforts said.

As well as the minimum 10 per cent target revaluation, Dr Kissinger was briefed by the Treasury on the need for other measures, such as a shift to a currency band against the dollar or a basket against a number of currencies to replace the peg.

Bill Rhodes, senior vice chairman of Citigroup, and Brent Scowcroft, who was national security adviser to President Ford and President George H. W. Bush, have also acted as unofficial envoys on behalf of the present administration.

Mr Kissinger and Mr Scowcroft were not immediately available for comment. Mr Rhodes declined to comment on talks with Beijing but said: “Apart from any external pressure, I think that it is in China's own interest in the coming months to move towards a market-based interest rate regime, accelerate the opening of the capital account, and move to a more flexible exchange rate system.”

Tony Fratto, US Treasury spokesman, refused to comment on the 10 per cent minimum target. “We have made it clear that the interim step should be of sufficient magnitude and flexibility to quell speculative financial flows,” he said. “Without commenting on particular individuals, I would say that it is important for the Chinese authorities to hear from respected individuals who can provide an accurate analysis of the American political environment on this issue.”

There was a marked shift in the Treasury's strategy ahead of last month's meeting of the Group of Seven leading industrial countries, with talk of the need for currency flexibility replaced by the call for urgent action.

The administration has been spurred by concern over a bill championed by Charles Schumer, Democratic senator, that would impose trade sanctions if China does not act within six months.

When John Snow, Treasury secretary, released the department's report on trade and exchange rates last week, he said that the Treasury had called for currency flexibility and that an interim step was needed.

The message was that China needed to act within the next six months. A senior administration official said at the time that a 5 per cent revaluation would not be enough.

Alan Greenspan said on Friday in response to a question at the Economic Club of New York that a notional 20 per revaluation of the renminbi would have little impact on the US trade balance.

Many experts on China say that the increased pressure from the United States may make it harder for the Chinese authorities to take action, and in particular for those who favour a shift in the currency regime to win the argument in Beijing.