US senators get tough with China over currency, one eve of Hu visit

The latest sparring over the yuan underlines tensions over trade before Hu arrives in Washington on Tuesday for talks expected to focus on a host of thorny issues, from rebalancing the global economy to dealing with North Korea. Hu will hold a summit with U.S. President Barack Obama on Wednesday.

Analysts are calling Hu's visit to Washington, the most important by a Chinese leader in 30 years given China's growing military and diplomatic clout and its emergence as the world's second largest economy after the United States.

A group of senators said it was vital for the United States to pass legislation to punish China if it fails to allow its currency to rise in value rather than manage the rate, giving it an unfair advantage in global trade.

"There's no bigger step we can take to preserve the American dream and promote job creation, particularly in the manufacturing sector ... than to confront China's manipulation of its currency," Democratic Senator Charles Schumer said yesterday.

The message to Hu is "We are fed up with your government's intransigence on currency manipulation. If you refuse to play by the same rules, we will force you to do so," Schumer said during a conference call with two other senators on a proposed bill to prod China on the yuan.

Hu, in a written interview with The Washington Post and The Wall Street Journal, said China had taken steps towards a more flexible exchange rate policy and appeared to reject a U.S. argument that Beijing should let its currency appreciate faster to help rein in domestic inflationary pressure.

The yuan has risen nearly 3.5 percent against the dollar since Beijing ended its peg to the dollar in June, much less than demanded by critics in the United States.

U.S. concerns over China's huge trade surplus, a stubbornly high U.S. unemployment rate and Obama's goal to double exports -- which could be fostered by a stronger yuan -- indicate anger over the yuan is likely to linger long after Hu's visit.

Any significant progress in Congress on passing a currency bill, however, may prove difficult given the White House preference to negotiate and Republican leaders who have voted against it in the past.

Both the Senate and the House of Representatives would have to approve the bill, and Obama sign it, for it to become law.

Congressional supporters claim wide support for the measure, but previous efforts to pass currency legislation directed at China have failed over concerns it could trigger retaliation by Beijing, the biggest foreign holder of U.S. government debt.

Investors and markets will watch for signs Hu and Obama can ease tensions after a rocky 2010, although many analysts have cautioned not to expect too much beyond friendly words and business deals worth potentially tens of billions of dollars.

The popular Chinese tabloid the Global Times, run by Communist Party mouthpiece the People's Daily, said both countries needed to "lay speculation to rest" about their relationship.

"The ambiguity of this influential relationship has seemingly unnerved the world," it said in an editorial.

"President Hu's visit will be placed under a global microscope. It is good timing for Washington to declare that China and the U.S. are not enemies today, and will not be in the future. This clarification will remove many uncertainties that may jeopardise global stability."

Underscoring Beijing's growing global influence, the Financial Times said China had lent more money to developing nations than the World Bank in the past two years.

China had lent at least US$110 billion to governments and firms in developing countries in 2009 and 2010, surpassing the US$100.3 billion by the World Bank, the newspaper said on this morning. The statistics were compiled from public announcements by banks, borrowers or China's government, it said.

In the U.S. city of Houston, the Chinese government began a four-day U.S. trade mission by signing six deals worth US$574 million, according to China's official Xinhua news agency.

Xinhua said the deals included two cotton import agreements and one on solar cells. The deals were "only the start for a further promotion of the Sino-U.S. trade relations," it cited deputy Commerce Minister Wang Chao as saying.

Chinese officials and company representatives will hold similar events in other U.S. cities.

Chinese and U.S. energy companies are expected to unveil joint agreements at a clean-energy forum hosted by the Brookings Institution on Tuesday in Washington.