China's Currency Move Has Doubters

China's revaluation of the yuan is being praised by many as an important break with the past. But some skeptics are dismissive of the gesture, made after pressure by foreign powers.

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China's decision yesterday to revalue its currency came after months of difficult negotiations. The US insisted that China make the move, while China said it would do so on its own schedule. Well, China relented, announcing a 2 percent increase in the value of the currency unit, the yuan. As NPR's Adam Davidson reports, the significance of China's move is still being debated.

ADAM DAVIDSON reporting:

When talking about China, Treasury Secretary John Snow is usually cautious. A couple months ago, though, he said something that carried with it an implied threat.

Secretary JOHN SNOW (Treasury Department): And I'm confident that our Congress seeing China move in the right direction here will be important in warding off wrong-headed protectionist policies.

DAVIDSON: With those words, the US Treasury secretary put the Chinese government on notice they better revalue their currency soon, because there's no telling what Congress might do. Indeed, Congress was threatening severe tariffs on all Chinese goods if the currency's value wasn't changed. Tim Ryan is an Ohio representative.

Representative TIM RYAN (Democrat, Ohio): There was a real good-cop-bad-cop scenario going on dealing with the Chinese on this one. The administration kept pointing to the rabid dogs in Congress and saying, you know, `Let us nibble at your ankle here, unless they're going to come after you and bite off your leg.'

DAVIDSON: This distance between a conciliatory administration and angry Congress reflected real difference between US economic players. Labor unions and smaller domestic manufacturers have been the most vocal in demanding that China revalue its currency. They say China has unfairly kept the yuan low so that Chinese companies can sell their products more cheaply. On the other side, retailers like Wal-Mart and US-based multinational companies benefit from the old currency regime, and so they've wanted the US to go easy on China. And then there's the Chinese government itself.

Jason Kindopp is China analyst for the Eurasia Group. He says some Chinese officials were afraid that the US Congress would hurt business, so they wanted to revalue. Others fought against it. So in both the US and China, there are powerful forces for and against a revaluation. And, Kindopp says, yesterday's move gave everyone a little something.

Mr. JASON KINDOPP (China Analyst, Eurasia Group): It's a very clever move by Beijing. What this does is it allows all of these actors to declare victory.

DAVIDSON: China did revalue the yuan, but only by 2 percent, far less than the 10 to 40 percent many in Congress wanted. Kindopp says such a small move will make little economic difference, but it's a huge political event. Congress can say China finally listened. The administration can declare a reasonable compromise.

The new system that China announced yesterday would allow the country's central bank to revalue the currency every day if it wants to. But the bank is just as free not to make any more moves at all. Congressman Ryan calls China's new system brilliant. He says they figured out a way to appear to have responded to Congress' concerns without actually having to do anything at all.

Rep. RYAN: It looks like the Chinese have won, and they've deflated the argument of Congress, at least in the short term.

DAVIDSON: Ryan says the Chinese have only bought themselves a few months' time. If the currency doesn't move a lot more by the fall, he's sure Congress will start applying pressure again. Adam Davidson, NPR News.

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