China's Economy Continues to Boom

October 11, 2005 12:38 PM ET

SHANGHAI, China (AP) - China's economy continues to grow at a blistering rate, but the nation is facing mounting pressure from the United States to slow its soaring trade surplus by letting market forces set the value of its currency.

China's planning agency reported Tuesday that gross domestic product grew by 9.4 percent in the first nine months of the year, and is forecast to grow by 9.2 percent for the full year -- almost three times the growth seen in the U.S. and almost six times what is expected in Europe.

China's economy grew 9.5 percent in the first half of this year and expanded by more than 9 percent in 2003 and 2004. China will release official third quarter GDP figures later this month.

Many government and business leaders in the U.S. contend that China's boom is being fueled by an artificially low exchange rate for its currency, the yuan. U.S. manufacturers say the yuan is now undervalued by as much as 40 percent, making Chinese goods cheaper in the United States and American products more expensive in China.

U.S. Treasury Secretary John Snow on Tuesday urged China to adopt a more flexible, market-driven currency, rather than the state-set exchange-rate system currently employed.

In July, China halted its decade-long practice of pegging the yuan's value to the U.S. dollar, choosing instead to let the yuan trade in a narrow band against a basket of currencies of its major trading partners. At the same time, China raised the value of the yuan by 2.1 percent against the dollar. But since then, the yuan has gained only about 0.3 percent against the dollar.

"We are anxious to see the Chinese fulfill the commitment they made to allow market forces to play a larger role in setting their currency's value over time," Snow said during a press conference at the U.S. Embassy in Tokyo. "They've gotten on the path that allows them to do so and we'd like to see China continue on that path."

Snow wrapped up a visit to Japan Tuesday before heading on to Shanghai. President Bush's administration is fielding its top economic team for Oct. 16-17 meetings in Beijing of the U.S.-China Joint Economic Commission, which serves as a regular forum for officials from both nations to discuss economic issues.

The trip comes amid ballooning American trade deficits and increased trade tensions with China and Japan, the two main Asian export powers.

Chinese officials said the currency issue would be discussed during a visit to Beijing this week by Snow and Federal Reserve Chairman Alan Greenspan -- but they gave no sign Beijing would move faster in loosening its controls on the yuan.

Foreign Ministry spokesman Kong Quan urged the U.S. side to "heed fully the Chinese position on exchange-rate reform."

Strong increases in exports remain a key driver of China's growth, said the report published in the state-run newspaper China Securities Journal on Tuesday.

It noted that growth in exports was likely to top 30 percent from last year in the first nine months of the year, with growth for the year predicted at about 25 percent. Imports will rise by a more modest 18 percent, leaving a record total trade surplus for the year of $79 billion, the report forecast.

The U.S. trade deficit with China reached $162 billion last year, an all-time high with any country.

The U.S. Congress has reacted to the trade gap with calls for more forceful action. One measure with widespread support would impose 27.5 percent tariffs on all Chinese imports unless Beijing allows its currency to rise further in value against the dollar.

Sen. Charles Schumer, D-N.Y., said if China does not begin letting the yuan rise in value, the bill's co-sponsors will demand a vote before Congress adjourns next month.

"The Chinese and the administration should be under no misapprehension," Schumer told The Associated Press on Monday. "If there is no movement, we will push our legislation."