China's policies 'a boot on the throat' of US

AS CHINA'S president Hu Jintao arrives in the United States today, he is being met with a claim from a group of US senators that Beijing's currency practices give Chinese companies an unfair advantage that acts like "a boot on the throat" of American economic recovery.

The three Democratic senators - Charles Schumer, Debbie Stabenow and Bob Casey - plan to introduce legislation this week to address the currency issue.

The American dream is "imperilled" by China, Mr Schumer said yesterday. He added that the message to Mr Hu is: "We are fed up with your government's intransigence on currency manipulation. If you refuse to play by the same rules, we will force you to do so."

If passed, the legislation would impose stiff penalties on designated countries that misaligned currency in a way that damaged US trade. Penalties would include tariffs on exports and a ban on any companies from those countries from receiving US government contracts.

US manufacturers say the Chinese government intervenes in currency markets to hold down the value of the yuan against the dollar by as much as 40 per cent, making Chinese products cheaper for Americans while increasing the price of US goods in China.

Since China announced it would allow more flexibility in its exchange rate last June, the yuan has appreciated just 3 per cent against the dollar.

China's leaders say relaxing currency controls too abruptly would damage its financial system, hurt its exporters and wipe out Chinese jobs.

Mr Hu arrives in Washington for a full state visit with President Barack Obama and also is expected to meet with senior members of Congress.

In a rare written interview with the Wall Street Journal and the Washington Post, Mr Hu yesterday urged an end to a "zero sum" Cold War relationship with the United States and proposed co-operation, but resisted US arguments about why China should let its currency strengthen.

In a sign that the future of the US currency continues to concern the most senior levels of the Chinese government, Mr Hu said the dollar-based international currency system is a "product of the past". He added that it would be a "fairly long process" to make China's currency an international one.

"We should abandon the zero-sum Cold War mentality," he said of relations with Washington, and "respect each other's choice of development path".

He also suggested co-operation with the US in areas such as new energy sources, clean energy, infrastructure development, aviation and space.

And he said the liquidity of the US dollar "should be kept at a reasonable and stable level".China has argued that the US Federal Reserve's November decision to buy $600 billion in US government bonds would undermine the greenback's value and lead to competitive currency devaluations by other countries.

China, with foreign exchange reserves of $2.85 trillion, is the largest holder of US debt.

The president's comments add to the sense that China intends to challenge the post-Second World War order largely created by the US and dominated by the dollar.

Mr Hu also responded to complaints that China does not always treat foreign companies registered in China fairly. "Their innovation, production and business operations enjoy the same treatment as Chinese enterprises," he said. "China will continue to improve laws concerning foreign investment."