US IS MAIN BENEFICIARY OF CHINA'S FIXED CURRENCY POLICY, SAYS AMERICAN CHAMBER OF COMMERCE

The main beneficiaries of Beijing's fixed currency policy are US companies exporting from China and US consumers who gain from lower priced goods, the American Chamber of Commerce in China said yesterday, writes James Kynge in Beijing.

Chris Murck, the chamber's chairman, did not endorse Beijing's policy of keeping the value of its renminbi in effect fixed against the US dollar but neither did he agree that China was pursuing mercantilist trade policies. "Most gains are captured by American firms, American citizens and American consumers, rather than by Chinese factories," Mr Murck said. The American Chamber, the biggest grouping of US companies in China, wields significant lobbying power both in Beijing and Washington. "Globally, China is at a virtually balanced [trade] position. It runs large deficits with Asian countries and .. .as a regional manufacturer it is also an aggregator of the regional trade surplus," said Mr Murck, also managing director of APCO Worldwide in Beijing, a consultancy.

China's trade surplus with the US rose to $103bn (€89bn, £62bn) last year, exceeding the Japanese surplus for the first time. More than 50 per cent of all Chinese exports are generated by foreign-invested companies in China. Many of these companies suck in raw materials and components from the rest of Asia, a phenomenon which meant China posted a $68bn trade deficit with the rest of Asia last year.

The American Association of Manufacturers has argued that the renminbi is 40 per cent undervalued against the US dollar, handing Chinese companies an unfair advantage and resulting in the loss of American jobs. Some 2.5m US jobs have been lost since President George W. Bush took office. Chinese officials have made it clear that Beijing will not revalue its currency. But they have promised US counterparts on several occasions to move towards a more flexible exchange rate system.

The main element of this plan is gradually to relax capital controls until the demand for renminbi and US dollars is more nearly aligned. The Chinese officials have told the FT that the central bank will allow the renminbi to float in a wider band against the US dollar. There is no timetable for this transition but steps have already been taken: Chinese are allowed to take $5,000 with them when they go abroad, up from $3,000. Chinese exporters are allowed to keep a larger proportion of the hard currency they earn, and more Chinese companies are being permitted to buy US bonds. Separately, Chinese companies are being encouraged to make greater direct investments abroad.

These measures, Beijing hopes, will help rebalance demand for the renminbi and the US dollar, allowing the central bank to introduce more flexibility to its exchange rate system without the fear of a sharp appreciation in the domestic currency's value.