Federal Reserve Chairman Alan Greenspan has warned against making China a scapegoat for all the ills of the American labor market in the runup to the November 2004 elections.

"The renminbi (yuan) is widely believed to be markedly undervalued, and it is claimed that a rise in the renminbi will slow exports from China to the United States -- which, according to some, will create increased job opportunities for Americans at home," he told a group of Texas business executives Thursday.

"The story on trade and jobs, in my judgment, is a bit more complex -- especially with respect to China -- than this strain of conventional wisdom would lead one to believe," he said.

In fact, "a rise in the value of the renminbi would be unlikely to have much, if any, effect on aggregate employment in the United States."

Increasingly vocal China critics here argue that Beijing is artificially depressing the value of its currency by tying the yuan at about 8.3 to the dollar despite a boom in its economy.

The low yuan makes Chinese goods unfairly cheap in the United States while effectively shutting out US exports to China, some American manufacturers complain.

As a result, critics say, jobs are lost in the United States.

Responding to pressure in key electoral states, US President George W. Bush's administration decided last month to slap textile import quotas on China.

Washington filed petitions under a provision of China's accession agreement to the World Trade Organization that allows the United States and other WTO members to impose temporary quotas on textile imports from China if they are found to cause market disruption.

US officials say they will enter a dialogue with China to cap imports of Chinese dressing gowns, knit fabrics and bras. Beijing has already warned the decision will harm Sino-US trade ties.

"China policy could become a heated US campaign issue as the presidential election approaches in November 2004," said Wells Fargo chief economist Sung Won Sohn.

The United States has undeniably become heavily dependent on goods stamped "Made in China": In October, China accounted for almost one-third of the US trade deficit.

If China were to allow the yuan's value to rise, US imports from the world's most populous nation would likely plunge.

But that would not necessarily favor American factories, Greenspan warned.

"If the renminbi were to rise, presumably US imports from China would fall as China loses competitive position to other low-wage economies. But would, for example, reduced imports of textiles from China induce increased output in American factories?" he asked.

"Far more likely is that our imports from other low-wage countries would replace Chinese textiles."

Some analysts say US industry has undergone an irreversible structural change.

"For one thing, manufacturing job losses are primarily a historic inevitability propelled by technological advances, just like the loss of agricultural jobs was at the turn of the last century," said John Markan, strategist at Pinnacle Investment Advisors.

"It's not much of an exaggeration to suggest that the largest Chinese company in the world is Wal-Mart, which makes its popular house-brand goods there," he said.

Consumers now demand the lowest prices, and the United States has lost its competitive advantage on salaries.

"The major cause of China's booming exports is not an undervalued currency. It is an upsurge of foreign direct investment, which has significantly boosted China's productive capacity and managerial competence," said Hale Advisers chief David Hale.

"Foreign companies produce over half of China's exports and accounted for 65 percent of export growth during the past decade," he added.

"The major complaints are coming from small or medium-sized US companies, which don't have the capital to invest in China or have not yet had time to penetrate the market there."

Greenspan warned against a new protectionist tendency gaining hold in the United States.

"For the most part, we as a nation have not engaged in significant and widespread protectionism for more than five decades," Greenspan said, adding: "The consequences of moving in that direction in today's far more globalized financial world could be unexpectedly destabilizing."

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