The US Treasury Department report on the world economy and currency management admitted China does not manipulate its currency value to its trade advantage.

The report, released last Friday, went on to claim "the US Government will pursue persistently and firmly its approach to promote economic, financial and market reforms in China and assist China to move as soon as possible to a flexible exchange rate regime."

The US clearance of China's "manipulation" of the renminbi's value helps blow away the cloud of accusations of China's monetary policy from US industrial groups.

The helping hand the report promised to give for reforming China's exchange rate regime, however, may have a bearing of more than a simple claim of assistance.

Given the past US records of relying on coercive persuasion to meet its end, we are waiting to see what kind of help it will offer for China's financial reform.

As the world economy becomes increasingly globalized, the United States and China have seen their economies being interwoven at an unprecedented pace. It is understandable that Washington is urging China to improve the renminbi's US dollar peg regime to solve its domestic economic woes, namely trade deficit and unemployment, for which US industrial lobbyists have been blaming China's undervalued currency.

China has made consistent efforts in the past few years to expand the floating band of some of its interest rates, laying down the groundwork for further monetary reforms. The US treasury report admitted that.

China has an economic structure different from that of the United States. It cannot reform its economic regime in accordance with a US-set timetable.

Domestic realities must be taken into consideration before major changes are made. Fast and steady economic growth is the paramount precondition for monetary reforms. The fragile financial system, which is under a substantial reshuffle, may need to become more sound to embrace the impact of an abrupt currency revaluation.

In this sense, while heeding the US call to revalue its currency, China deserves understanding from the United States.

President Hu Jintao held talks on this issue with US president George W. Bush in Chile last month. Their exchange of views should help untie this economic Gordian Knot. More exchanges between the leaders and experts of the two countries are imperative to hammer out a solution that is acceptable to both and, above all, will not harm China's economic health, which also has a growing impact on the world economy.

(China Daily December 8, 2004)