January 11, 2006	Wednesday	Zilhaj 10, 1426

BEIJING, Jan 10: China’s currency exchange controls and trade surplus are fanning so much ire in Washington that Congress may pass legislation threatening to punish Beijing, a US senator said on Tuesday.

Max Baucus, the top-ranking Democrat on the Senate Finance Committee which oversees trade policy, said he favoured trade with China and opposes legislation targeting China’s currency exchange rules. But the ballooning US trade deficit with China may encourage many lawmakers to support such steps, he said.

“US politics on China will become unmanageable if China’s trade deficit with the US continues to grow,” Baucus told a meeting of business executives in Beijing.

The US trade deficit with China probably topped $200 billion in 2005 — a 25 per cent increase on the previous year and nearly 30 per cent of the total US deficit, Baucus said.

Bilateral relations were also dogged by China’s rapidly rising garment exports following the lifting of global quotas at the beginning of 2005 and then Washington’s re-imposition of limits. The two sides reached a compromise in late 2005.

If China does not take steps to rein in the trade gap, “Washington may take measures to reduce the trade imbalance by reducing Chinese exports,” Baucus said, adding that he opposes such protectionist steps.

China revalued the yuan by 2.1 per cent to 8.11 a dollar in July, and since then the yuan has continued to rise in small steps to about 8.07.

But Baucus said China’s exchange rate changes so far may not be enough to cool anger in Congress, and many members may vote for retaliatory legislation promoted by Democratic Senator Charles Schumer of New York and Republican Senator Lindsey Graham of South Carolina who say China unfairly keeps its yuan cheap to promote exports.

That legislation would impose tariffs of 27.5 per cent on Chinese exports unless Beijing dramatically raises the value of its yuan currency.

Schumer said last month that he plans to bring the legislation forward for a vote in 2006.

“If it actually comes up for a vote, a lot of members of Congress are going to be sorely tempted to support it,” Baucus told reporters.

“I strongly oppose the Schumer bill, but on the other hand, I can see why a good number of the members of Congress, and perhaps a majority, would support it.”

President George W. Bush has never vetoed legislation passed by Congress, and so China should take “significant action” to ease US concerns before any vote, said Baucus.

China’s custom’s authorities announced on Tuesday that exports to the United States grew to $147.6bn in the first 11 months of 2005, a rise of 31.7 per cent on the same period a year earlier.

China’s imports of US goods rose 8.1 per cent to $43.9 billion over the same time, giving a trade gap of $103.7 billion.

US figures, which use different valuations and include more goods shipped through Hong Kong and third countries, offer much higher estimates of the trade gap.

The US figures say China’s exports to the United States for the first 10 months were worth $200.6 billion, and US imports to China were $33.7 billion.

Baucus met Chinese Commerce Minister Bo Xilai and other economic officials during a two-day visit to Beijing, and he was encouraged by the Chinese side’s lack of “push-back” on the currency complaints.

He also said Bo indicated that China may soon lift its ban on beef imports from the United States. China and other countries imposed the ban in 2003 after Bovine Spongiform Encephalopathy (BSE), or “mad cow” disease, was found in some US cattle.

Baucus, who represents the farming state of Montana, said Bo’s words were “very, very encouraging”.

Baucus said the Chinese officials he met did not reveal any details of currency policy moves, especially recent speculation that China may reduce holdings of the US dollar.

On Tuesday, a Chinese central bank official rejected widespread market and media speculation that China may sell US dollar assets as it diversifies foreign reserves.

Tang Xu, the director-general of the research bureau of the People’s Bank of China, also said the yuan was unlikely to appreciate sharply.

But Baucus said China needed to do more to head off the currency legislation, especially with congressional elections later in 2006 that may focus on economic insecurity and trade.

“I don’t know how large this window is, but time’s going by,” he said. “There’s not a lot of time left.”—Reuters