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China...s Currency Move Allows Bush Administration New Hope

By Keith Bradsher
and Steven R. Weisman


It’s been just days since Treasury Secretary Henry M. Paulson Jr. left China, but already in the last two weeks, China’s government has dramatically stepped up the appreciation of its currency, allowing it on Thursday to push through an important level against the dollar for the first time.

The recent climb — less than a percent since the beginning of September — may be modest overall and it is probably temporary. But it is producing cautious hope in the Bush administration that the Chinese government may be lifting its opposition to a revaluation that could ease China’s huge trade surplus with the United States.

Though modest, the rise this month in the value of China’s currency, the yuan, is still more than four times the annual rate of the currency’s appreciation for most of the past year. On Thursday, China’s government let the yuan push through 7.9 to the dollar, the latest in a series of daily highs that for the past two weeks proceeded at an annualized rate of 17 percent.

Partly in response to the currency lift in China, two influential senators in Washington announced Thursday that they were pulling back legislation that would punish China with tariffs if it did not act to allow the value of its currency to rise, a step that would make exports to the United States more expensive.

The senators, Charles E. Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, said they would introduce another form of their bill next year, however.

The White House and Paulson had vigorously opposed the Schumer-Graham measure, arguing that putting pressure on the Chinese would backfire and that imposing tariffs as the bill contemplated would violate international rules. Paulson called for the bill to be pulled back after he returned from a trip to China last Friday.

Schumer said Thursday that he and Graham would work with other senators to write a bill for submission next year that would press the Chinese but not do anything that might contravene rules of the World Trade Organization.

“There’s a view in both the administration and in Congress that our legislation and the Paulson visit to China has given an impetus for the Chinese to move,” Schumer said in an interview. “Our bill was an admittedly blunt instrument. We have decided that it has run its course and that it is time to move to another approach that complies with the WTO.” Analysts disagreed on Thursday as to whether the Chinese action was significant, a harbinger of a trend or a feint that could be reversed easily.

The strengthening of the currency in September, at an annualized rate of 10 percent, compares to an annual appreciation of less than 2.5 percent for most of the year following China’s small revaluation in July of 2005.

“The reality is they’re moving at a faster pace,” said Jonathan Anderson, the chief Asia economist at UBS. Others said the pace was likely to be temporary.