The decision by two U.S. senators to abandon a punitive bill against China's currency policy has avoided damaging relations between the two countries, an expert said in Beijing Friday.
U.S. senators Charles Schumer and Lindsay Graham said Thursday they would abandon the bill which would have forced a 27.5 percent tariff on Chinese goods unless the yuan was significantly revalued.
Tan Yaling, a researcher at the China International Economic Relations Council, said the bill compromised both the interests of China and the United States.
"If passed, the bill would have destroyed Sino-U.S. economic and trade relations ultimately," said Mei Xinyu, an expert with the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce.
"Even if the bill had been submitted, it was unlikely the U.S. Senate would have approved it," said Tan. "The bill was more a political tactic, resulting in the pressure of public opinion for the yuan's appreciation."
The central parity rate of the Renminbi (RMB) against the U.S. dollar broke the 7.9 mark Thursday, bringing the currency's total appreciation to more than 2.66 percent since reform of the RMB exchange rate system.
Last July, China pegged the yuan to a basket of currencies instead of just the U.S. dollar, allowing the currency to fluctuate within a daily 0.3 percent band from the central parity rate.
Too rapid an appreciation would damage China's economic environment and negatively affect exports and investment into the U.S., which constituted an important part of global resource flow that feeds the U.S. economy, said Tan.
U.S. critics argue that China's currency is undervalued by as much as 40 percent, giving Chinese goods price advantages and hurting U.S. manufacturers.
"Nobody can judge how much the RMB should be valued at for the moment," said Tan.
She argued that Western standards should not be applied to the RMB, because China and Western developed countries had quite different economic foundations, developing processes as well as market sizes and performances, and those excited about China's economic figures should take its huge population in consideration.
Meanwhile, the two senators said they would develop a new tough bill against China's RMB controls early next year after they agreed to give the Bush administration more time to negotiate with China.
The U.S. government was unlikely to give up its bid to push for a more floating RMB exchange rate system, said Mei.
He predicted that the Bush administration would turn to the International Monetary Fund (IMF) and bilateral channels.
The IMF approved a resolution on September 18 to give more voting power to China, South Korea, Mexico and Turkey. China now has 3.72 percent of the voting share, up from 2.98 percent.
Increased voting power in the IMF meant greater responsibilities, so China could face greater pressure from Western countries to liberalize its own exchange rate regime, said He Fan, an expert with the China Academy of Social Sciences.