Report On China Is Notably Softer On Currency Valuation

WASHINGTON, Dec. 19 — The Bush administration, softening its tone of criticism toward China, reported to Congress on Tuesday that the Chinese had made strides in revaluing their currency, but that the progress was considerably less than is needed.

The muted tone, in contrast with a finding more than six months ago, came in a report that is required twice a year. It was issued four days after a trip to China by Treasury Secretary Henry M. Paulson Jr. and six other Cabinet-level officials. And it appeared to reflect Mr. Paulsons preference for quiet persuasion over confrontation.

The administration has called on China to open its economy further, crack down on product piracy and let the value of its currency, the yuan, rise. Many economists contend that the Chinese have deliberately undervalued the yuan to promote exports. A low value for Chinas currency makes its exports relatively cheap in the West and its imports more expensive.

The administrations report used mild language in calling on China to change its ways.

Chinas cautious approach to exchange rate reform continues to exacerbate distortions in the domestic economy and impede adjustment of international imbalances, it said, referring to the imbalances of the $200 billion trade deficit with China and Chinas possession of $1 trillion in foreign exchange reserves.

If the criticism of the Beijing policies was muted, so was some of the reaction among business groups and, to a degree, among China critics in Congress.

Theres no way Paulson would take half the cabinet to Beijing, come back and take a baseball bat and whack the Chinese on the side of the head, said Franklin J. Vargo, vice president for international economic affairs at the National Association of Manufacturers.

Mr. Vargo said the manufacturers and other business groups that favored a higher exchange rate for the Chinese currency would probably wait and see before pressing Congress to punish China.

Well see if this works, he said. But if things dont move faster in the next six months, that will be a trigger for Congress to act.

Still, some critics said the administration should have been more forceful by formally calling China a manipulator of the value of its currency, which could have initiated retaliatory measures in Congress.

After five years of work on this issue, we are not satisfied, Senators Lindsey Graham, Republican of South Carolina, and Charles E. Schumer, Democrat of New York, said in a statement. If the administration still wont call China a manipulator, how can we ever expect them to get China to play fair?

In May, the Treasurys report on China said the administration was extremely dissatisfied with Chinas progress on the currency issue.

The Treasury secretary at the time, John W. Snow, criticized China at a news conference even while declining to label it a currency manipulator, because such a ruling would have required a finding of intent on the part of the Chinese.

On Tuesday, Mr. Paulson made no public appearance or comments in connection with the report. A Treasury official, briefing reporters on the condition that he not be identified, said it continued to be difficult, if not impossible to discern intent.

Another factor in the toned-down report was that, as of last Thursday, China had allowed the value of the yuan to rise by 5.88 percent since July 2005, as the report noted.

In the view of the administration, China is engaged in an internal debate — with currency reformers saying that the yuans value should be allowed to rise and officials associated with the export industries, a major part of national economic output, opposed to such a step.

The Bush administration sees China as trying a step-by-step approach toward its currency, hoping that a gradual revaluation over a long period will give manufacturers time to adjust and the broad economy time to transform itself into one powered more by domestic consumption than by exports.

Trade Terms Reached With Panama

Panama and the United States agreed to terms of a free trade agreement yesterday that would end tariffs and determine rules for investment, setting up a potential trade fight in Congress next year.

The accord follows by two months voter approval in Panama of a plan to invest $5.3 billion to expand the Panama Canal. If approved, the agreement would guarantee that United States companies have an opportunity to help build the canal project, according to the United States trade representatives office.

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