China's currency--Bending, not bowing

This article is about the Chinese currency policy issue.

On April 3rd Tim Geithner, America’s treasury secretary, tactfully postponed a report due this month that might have condemned China for manipulating its currency, keeping it weak to favour its exporters. Mr Geithner, who made an unscheduled trip to Beijing this week, said he would rather press America’s case at its regular “Strategic and Economic Dialogue” with China in May and at the G20 summit in Canada in June. The delay puts America’s diplomatic account with China briefly in surplus.America’s Treasury is willing to bide its time. But its patience is not shared by members of Congress. Last month 130 of them wrote to Mr Geithner urging tougher action against China. After the currency report was postponed, Chuck Schumer, a New York senator, said he would push his bill to slap anti-dumping duties on some Chinese goods and countervailing tariffs on all of them if China does not allow its currency to strengthen.

For me, I think it is unwise for the congress to push China too hard on its currency issue. Because of the expectation of a stronger Chinese Yuan, the incentives for capital inflows to Chinese market have been very strong. Chinese government insists to keep the exchange rate stable for the sake of its own interest. Therefore, a radical request to appreciate the Yuan will not receive much positive response from Chiese government. Maybe a gradual appreciation of Chinese currency will be the best solution to this problem.