Senate unlikely to follow House on yuan

WASHINGTON Sun Oct 24, 2010 2:57pm EDT

1 of 2. A U.S. dollar note (L) and a Chinese yuan banknote are seen through a pair of spectacles in this picture illustration taken in Taipei October 13, 2010.

Credit: Reuters/Nicky Loh

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WASHINGTON (Reuters) - The Senate is unlikely to take up pending China currency legislation following a weekend promise by the Group of 20 economic powers to shun currency devaluations for trade advantage, analysts said on Sunday.

Finance ministers from G20 leading and emerging economies agreed at a weekend meeting in South Korea to "refrain from competitive devaluations" of their currencies and to pursue a full range of policies to reduce excessive external imbalances.

Congressional elections will be held in the United States on November 2, and only a few weeks are planned for a post-election session in which Congress has to tackle major spending and income tax issues.

There was little chance even before the G20 meeting that the Senate was going to act on legislation passed by the House of Representatives aimed at pressuring China to raise the value of its currency.

But pressure to act has been mounting from some lawmakers and U.S. manufacturers hurt by China's trade advantages and it has been an issue in some election campaigns in industrial states like Pennsylvania. The G20 agreement buys Treasury Secretary Timothy Geithner some time to pursue a diplomatic approach with Beijing over the value of the yuan.

"I think he bought some time with the Congress," said Donald Straszheim, senior managing director for China research at ISI Group in Los Angeles. "The Senate isn't going to take this up in a lame duck session. There is just too much potentially to lose and not enough to gain. They'll leave this until the next Congress."

The November 2 elections will determine which party controls the next Congress, which will be seated in January. Republicans are poised to make big gains and possibly take control of the House. Democrats are likely to retain slim control of the Senate with Republicans expected to pick up a number of seats.

"I don't think they (the Senate) are ever going to take it (the China currency legislation) up," said Paul J. Markowski of Global Strategies-Analysis Group/MES Advisers, a New York consulting group.

ACTION WILL TAKE TIME

Geithner, who met briefly on Sunday with Vice Premier Wang Qishan in eastern China, may have secured some promises from the Chinese to take action on its currency but it will take time, Markowski said.

The main aim of the two days of finance minister talks, which precede a G20 summit in Seoul on November 11-12, was to ease the currency strains that some economists feared could escalate into trade wars.

U.S. officials said they were pleased with the main points of the G20 agreement -- although it stopped short of setting any targets to reduce trade imbalances.

There was little reaction on Sunday from lawmakers who claim China's yuan is misaligned in value, distorting trade and stealing U.S. jobs.

But a spokesman for Senator Debbie Stabenow said the Michigan Democrat would push to pass the currency legislation.

"We must hold China accountable and stop currency manipulation which hurts Michigan businesses and workers," spokesman Matt Williams said.

The House-passed legislation would threaten China with tariffs on some of its goods unless there was significant upward movement in the value of the yuan.

A number of international analysts have said threatening China would be counterproductive and Geithner has pursued a more diplomatic approach, trying to convince Beijing it would be in its own best interest to adopt a market-based currency regime.

(Editing by Mohammad Zargham)

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