WRAPUP 2-U.S. to judge China’s yuan policy as elections near

* Treasury to determine if China a “currency manipulator”

* Some see increased chance Treasury will cite China

* Decision less than 3 weeks before U.S. mid-term elections

* China warns U.S. not to make a scapegoat of yuan

By Doug Palmer

WASHINGTON, Oct 15 (BestGrowthStock) – President Barack Obama’s
administration faces a tough call on Friday whether to label
China a currency manipulator, a move many U.S. lawmakers say is
overdue but one that could sour Sino-U.S. relations.

A desire to look tough on “unfair” trade practices ahead of
U.S. congressional elections on Nov. 2, in which Obama’s fellow
Democrats are battling to retain control of Congress, could
tempt Obama to cite China for the first time in 16 years.

But concern about angering the United States’ largest
creditor argues for a continuation of diplomatic efforts that
have resulted in a nearly 2.5 percent rise in the value of
China’s yuan currency (CNY=: ) over the past several months.

It is a fine line to walk, and many observers think Obama
will opt to play it safe with Beijing and give it another pass.

One possibility is that the administration will refrain
from labelling China a currency manipulator, another option is
to delay the report. [ID:nLDE69E01X]

China on Friday left little doubt about the rancour that
would ensue if it is branded a currency manipulator.

“It is entirely wrong for the United States to make an
issue of China’s trade surplus and hence put pressure on the
yuan exchange rate,” commerce ministry spokesman Yao Jian said.

“The Chinese yuan should not be a scapegoat for United
States’ domestic economic problems,” he said at a briefing.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ PDF on "Currencies: Race to the Bottom"

http://r.reuters.com/gez77p
Currency stand-off ahead of G20 [ID:nLDE69308R]
Graphic on currency tensions http://r.reuters.com/deh58p
Scenarios [ID:nLDE69E01X]
Insider TV http://link.reuters.com/xyj28p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A U.S. industry official, speaking on the condition of
anonimity, said he thought chances have increased that the
Treasury Department would label China a currency manipulator
when it releases the semi-annual report.

“The tone of the rhetoric has changed,” the official said,
referring to a recent speech in which Treasury Secretary
Timothy Geithner argued forcefully that markets, not
governments, should determine exchange rates.

Washington says Beijing could help rebalance the global
economy by reducing its reliance on exports and letting the
yuan rise. This would ease the pressure soaring currencies are
placing on many other emerging market economies, Geithner has
said.

China in turn has argued that moving too quickly with
currency reforms could devastate its economy, and has blamed
the United States for its loose monetary policy that has
weakened the dollar and pressured developing economies.

LETTER OF THE LAW

The Treasury Department is mandated by law to issue a
report every six months on whether any country is manipulating
its currency for an unfair trade advantage.

U.S. lawmakers, including House of Representatives Ways and
Means Committee Chairman Sander Levin and Senate Finance
Committee Chairman Max Baucus, both Democrats, have long hurled
that charge at China.

But the last time any administration — Republican or
Democrat — has cited a country under the 1988 currency law was
in July 1994, when China was put in the spotlight.

Geithner delayed the April 15 report until July 8 to give
China more time to act on its own, and shortly before a summit
of leaders from the Group of 20 nations in late June, Beijing
unshackled the yuan from a nearly two-year peg to the dollar.

While the move was initially welcomed by the Obama
administration, it became a source of irritation when the yuan
barely rose in subsequent months.

It has risen faster since two top White House advisers
visited Beijing in September, but not enough to stop the House
from approving legislation allowing the United States to slap
duties on imports from countries with fundamentally undervalued
currencies.

In an article published on Friday, Chinese central bank
governor Zhou Xiaochuan pledged a continuation of yuan reform,
but only on Beijing’s gradual terms.

“The yuan exchange rate will be basically stable at a
reasonable and balanced level,” he wrote in China Finance, a
magazine published by the central bank.

Derek Scissors, a research fellow at the Heritage Institute
in Washington, said: “The odds still are that Treasury won’t
cite”.

However, he hedged his bet, saying many in Congress now
believe “the yuan only moves when political pressure is high.
That argues for finding manipulation this time.”

The administration might also want to cite China in the
hopes of reducing the chance the Senate approves the currency
bill already passed by the House, out of concern the
legislation could spark retaliation from Beijing.

In congressional testimony last month, Geithner suggested
it would be meaningless to cite China because under the 1988
law it would only trigger consultations, noting that the
administration was already talking with Beijing.

“I think we can say with certainty that Mr. Geithner is of
the view that naming them a manipulator has no practical
consequence and therefore shouldn’t be done,” said Nicholas
Lardy, a senior fellow at the Peterson Institute for
International Economics. “The real question is whether or not
political forces are going to force him to name China.”
(Additional reporting by Aileen Wang in Beijing; Editing by
Todd Eastham and Tomasz Janowski)

WRAPUP 2-U.S. to judge China’s yuan policy as elections near