Wu Xiaoling said it was "not proper" for the country's currency reform to occur "under pressures from the outside," including pending legislation by US lawmakers to slap a 27.5% tariff on Chinese imports unless Beijing depegged within six months. Although "originally, there was pretty good environment" for reform, according to Wu, pressure from the US had impeded progress: "We never thought that in the first quarter of this year that they (the US Congress) would put out such a plan," she said. And Wen told a visting trade delegation later that the yuan's reform is "the sovereign issue of China," which China would begin "on its own initiative."
Before the forex frenzy, the US Treasury said it saw progress in getting Beijing to adopt a more flexible currency system after a May 10th discussion with the Chinese in the first such meeting this year. Federal Reserve boss Alan Greenspan predicted China would loosen its currency "sooner rather than later" because Beijing faces difficulties in selling enough yuan-denominated debt to soak up large amounts of foreign securities it must buy to maintain the yuan's value at 8.28 to the dollar.
The White House, which until recently had taken a 'quiet diplomacy' stance on China's currency reform, still differs from Congress on strategy, with US Trade Representative Rob Portman recently saying the tariff proposal could lead to a trade war. Still, the congressional clamoring has borne fruit: after rejecting similar requests last year, the Bush administration said it would review a new congressional request to launch a yearlong investigation into whether China's currency peg is an unfair trade practice. The administration had fewer than 45 days to decide if it wanted to launch the probe.