U.S. Urges China to Let Yuan Float More Freely

By Dow Jones Business News, 
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BEIJING--U.S. Treasury Secretary Jacob Lew pressed Beijing's political leaders to let the yuan float more freely and to limit government intervention, moves which the U.S. believe would ultimately boost the value of the yuan against the dollar.

Before meetings with two of China's top economic managers, Premier Li Keqiang and Vice Premier Wang Yang, Mr. Lew used the same language, urging Beijing to "demonstrate a renewed commitment to move to a more market-determined exchange rate" as well as a "more transparent exchange rate policy."

The economic jargon Mr. Lew used had a political message. In March, China doubled the range the yuan could move each day to a maximum of 4%, suggesting that China was going to give market forces greater range in setting the Chinese currency's value. But since that time, China regularly intervened in the market by buying dollars, according to Chinese central bank data, which depresses the value of the yuan. Since the beginning of the year, the yuan has fallen nearly 3% against the dollar.

Mr. Lew's message, according to U.S. and Chinese officials: cut it out and let the market find its own level. While the message is a free market one, the U.S. believes a hands-off exchange policy would boost the value of the yuan over the long run--a long sought U.S. objective. "There are a number of continuing signs that the (yuan's) exchange rate adjustment process remains incomplete and the currency has further to appreciate," the Treasury Department wrote in a semiannual report on exchange rates in April.

It is far from clear that the Chinese will take Mr. Lew's message to heart. Central bank officials have said they have pushed down the value of the yuan as a way to punish speculators--and it isn't clear when, or if, the central bank will ease off that policy. Zhu Guangyao, a Chinese Finance vice minister, said in a press briefing that the daily movement of the yuan already is "a reflection of market moves and the balance of supply and demand in the market."

Other Chinese officials have also said that the yuan is close to its so-called equilibrium exchange rate--meaning it is fairly valued. Arvind Subramanian, an economist at the Peterson Institute of International Economics in Washington, D.C., also has argued that new World Bank data on global pricing suggests that the yuan is fairly valued.

Mr. Lew came to Beijing, in part, to continue preparation on a yearly economic and security summit, which will be held in July in Beijing. On Tuesday, Beijing ministries released a number of economic data indicating that the Chinese economy was slowing more deeply than anticipated largely because of weakness in the country's residential real-estate market. The Treasury secretary urged China to continue its reform in meetings with Messrs. Li and Wang, as well as Finance Minister Lou Jiwei, and senior economic adviser Liu He. "The challenge for China is going to be the follow through," Mr. Lew said in a briefing.

Mr. Zhu, the finance vice minister, also said that China was committed to carrying out reform and wouldn't be swayed by slowing growth, problems in real estate or burgeoning debt. Unlike early 2009, when China's economy slowed sharply because of a global recession, Mr. Zhu said the country wouldn't adopt a major stimulus plan.

"Such stimulus policy can only exert negative impact on the medium and long-term sound development of China's economy," he said

Indeed, Mr. Zhu was far more optimistic about China's growth prospects than most economists, arguing that China can grow between 7% and 8% a year for the next decade. He said he hoped U.S. growth would also pick up from the disappointing 0.1% annual growth rate of the first quarter.

"We hope that in the whole year of 2014, the U.S. can achieve the target of 2.8% to 3% growth," Mr. Zhu said. "This is important for U.S., China and the world economy."

Write to Bob Davis at bob.davis@wsj.com and Richard Silk at richard.silk@wsj.com

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  05-13-141135ET
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This article appears in: US Markets , Forex and Currencies , Economy


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