WASHINGTON, Dec 8 - U.S. Treasury Secretary John Snow said on Monday he believed China was serious about moving to a flexible exchange rate, but noted there could be problems in the region if Beijing took that step too quickly. In an interview with one day before a meeting between U.S. President George W. Bush and visiting Chinese Premier Wen Jiabao, Snow said Chinese leaders have taken several steps in recent months to prepare for the day when they will allow the yuan to float freely in international markets. "A lot of positive things are occurring," Snow said. "They're serious about reforming their banking system" and have relaxed some capital controls to allow more hard currency to flow in and out of the country, he said. China's currency rate, currently pegged at about 8.28 to the dollar, is one of several topics on the agenda for Tuesday's meeting between Bush and Wen, Snow said. U.S. manufacturers complain Beijing's pegged exchange rate gives it an unfair trade advantage by artificially keeping down the price of Chinese exports. This autumn, Snow pressed Chinese leaders on the need for a more flexible exchange rate when he traveled to Beijing. "We found an affirmation that that's where they want to go, longer term. They pointed out they had obstacles to overcome before they could go there," Snow said, noting in particular China's large number of nonperforming bank loans.
"We acknowledged that they couldn't go there immediately -- in fact, that it would probably be a mistake to try to go there too soon because you risk some financial imbalances in that region," Snow said. He also declined to say how long he thought it would take China to move to a flexible currency regime. Earlier on Monday, a senior Chinese official traveling with Wen in New York said China's currency peg was not to blame for the huge U.S. trade deficit with China. "You must look at the trade imbalance as a function of many factors," said Ma Kai, who heads China's powerful State Development and Reform Commission. The trade gap, which hit a record $103 billion in 2002 and is expected to top $120 billion this year, has fueled anger in the U.S. Congress at China over the currency issue. Snow said Treasury would soon announce the appointment of a U.S. official who will be permanently based in Beijing to work with China on currency and other financial issues. The Bush administration will press Wen on a number of trade issues, including the need for Beijing to more rigorously enforce laws against the illegal copying of U.S. music, movies and other entertainment products, he said./