BEIJING, May 11 (UPI) -- The U.S. Treasury Department's first permanent representative overseas Thursday stressed the urgency of working with China on currency reform, a day after the Bush administration said it would not brand the economic powerhouse a currency manipulator that seeks to gain unfair trade advantages.
Noting that China's currency is recognized by every credible international economic organization as out of whack with the global economy, U.S. Treasury financial attaché David Loevinger said it was time for change, not words.
"There's a variety of bills in both the House and Senate, some are focused on currency, and some are focused on other China trade issues," he said. "We have been pretty clear that we don't support bills that would close or reduce access to the U.S. market. We don't support turning towards protectionism or isolationism."
"We think the best way to support reform in China, including exchange rate reform, is through constructive engagement," Loevinger added, noting that his appointment as the first permanent treasury representative overseas emphasized U.S. efforts in this direction.
"It's... the first time that Treasury has sent someone out at the level of a deputy assistant secretary, what I was before I came out here and I think it just signals the importance it places on these issues," he said.
Analysts say Loevinger's posting comes at a critical time in the run-up to the November elections with China's gradualist pace of making its currency more open to market forces a political sound byte, easy to score points with voters by threatening punitive action against the world's fourth largest economy.
They further note how every successive presidential administration since Sino-U.S. ties were normalized in 1979 have learned that Beijing gets defensive when it feels Washington is dictating its agenda.
Asked why China has moved so slow in reforming the exchange rate, Loevinger struck a diplomatic tone.
"Chinese officials face a variety of political pressures," he said. "Our impression is that they are particularly concerned about rising imbalances and inequalities in the economy, particularly between the coast and rural areas and are concerned about the impact greater exchange rate flexibility would have on different sectors of the economy, particularly the rural economy."
The newly released report to Congress on International Economic and Exchange Rate Policies did not classify China a currency manipulator. However, U.S. lawmakers believe an undervalued Yuan exacerbates the U.S. trade deficit, which stood at $202 billion in 2005, and costs American factory jobs. Several bills to impose penalizing sanctions have wide bipartisan support.
Loevinger detailed specific reform steps the Treasury Department is looking for China to take over the next six months before issuing its next report.
"To start, we don't see any technical reason why China could not move today to a more flexible change rate regime. They have done a lot of work, and we have worked very closely with them over the last several years to put the market infrastructure in place," he said. "They (have also) instituted inter-bank trading in foreign currency to develop a much more liquid and efficient foreign currency market."
The Treasury Department will meticulously monitor progress China is making toward a more flexible exchange rate regime, the financial attaché affirmed.
"We also think the things President Hu and Premier Wen have talked about to rebalance China's growth are important, to rely less on investment and exports and to rely more on consumption. This will produce a more balanced Chinese economy and help reduce its large external imbalance," he continued, citing a list of priorities the country needs to follow to reduce savings.
"The reduction of controls on capital outflows should help give Chinese investors a wider variety of investments they can put their savings into earning higher rates of returns, diversify risks, all this should help reduce Chinese savings over time," he said.
