No case for China trade sanctions, says IMF

There is no case for trade retaliation against China because of its foreign exchange policy, International Monetary Fund (IMF) managing director Rodrigo Rato said overnight (NZ time).

In an interview with Reuters, Rato also said it was not the global lender's role to help those who sought to pressure China into speeding up a move to end a decade-old peg between the yuan and the dollar, which American manufacturers say amounted to an unfair trade advantage.

"We were insisting all through the summer and the winter that China should change its exchange-rate system, but we never accepted the argument that there was a case for retaliation against China," Rato said.

"I know some groups and people thought otherwise. I think there was no case for that and that it would have been unfair and a mistake," he added.

After months of political pressure mainly from the United States, China last week revalued its yuan currency upward by 2.1 per cent and abandoned the peg, though the move was less than the Bush administration was thought to be seeking.

China's central bank said it was switching to a managed float "based on market supply and demand with reference to a basket of currencies."

Despite talk of market forces, there has been little sign of supply and demand influencing the currency since then, though analysts are unsure how the system will develop.

Rato said China should take full advantage of the managed float and said China's task was to allow market forces to operate more freely in setting the currency's value.

"I think the movement was a movement out of the peg, (but) now it is up to them to use their technical instruments to make the value of the currency become more and more related to the market value," he said.

"We believe they have changed their regime but still there is a long way to go to make that new regime (that) they have credible," Rato said, adding the IMF was working with China to encourage it to take full advantage of the opportunity.

Rato acknowledged that the IMF has been under outside pressure to judge whether the Chinese had been unfair by pegging the yuan to the dollar. But he said IMF analysis showed that China's foreign exchange policy was based on its desire to maintain economic stability rather than being manipulative.

"It is clear that for some people the only valuable contribution of the IMF to this issue was to give technical coverage for retaliation against China. I don't agree with that," Rato said.

"We were getting the Chinese aware that they were technically ready, which they were not last summer, giving the Chinese advice to help them see it was in their own advantage and helping the Chinese realize that their economy was ready for it and (that it) was needed," he added.

Rato said the days of the IMF dictating to governments from Washington how to run their economies were "long gone".

As Rato spoke, two US senators said they were prepared to push for passage of legislation imposing stiff tariffs on imports from China if Beijing does not take further steps to adjust the yuan.

- REUTERS