China unyielding on yuan as U.S. pressures

The World Bank weighed into the debate, recommending a stronger exchange rate and a tighter monetary policy to restrain inflation expectations and asset bubbles in China.

The case for greater exchange rate flexibility had, on balance, increased over the last year, Ardo Hansson, the bank's lead economist in Beijing, told a news conference.

“If there is a concern about inflation, if there is a concern about sensitive capital inflows, this is part of the arsenal for dealing with these policy issues,” he said.

IMF chief Strauss-Kahn said a stronger focus by China on “domestic-led growth” would help the yuan appreciate.

“Some currencies in Asia are undervalued, especially the renminbi,” he told a committee of the European Parliament in Brussels. The renminbi is another name for China's yuan.

Beijing's stance on the yuan had been consistent and was unchanged, the Chinese official in Beijing said.

He cited Premier Wen Jiabao and Commerce Minister Chen Deming, who have said a stable yuan has contributed to both the Chinese and the global economic recovery.

“We have repeated ourselves multiple times. And we cannot be any clearer,” the official said.

Friction Over Deficit

China has in effect pegged the yuan near 6.83 to the dollar since mid-2008 to cushion its exporters from the global crisis.

Rising inflation and recovering exports had fueled market expectations that Beijing was on the cusp of resuming the gradual path of appreciation followed for three years starting in mid-2005.

Wen on Sunday recommitted China to pushing ahead with reform of the yuan's exchange rate mechanism, leaving the door open to reintroducing exchange rate flexibility if it suits Beijing.

But the premier also said that the yuan was not undervalued and said calls for appreciation were tantamount to protectionism.

The U.S. trade gap with China narrowed to US$226.8 billion in 2009 from a record US$268.0 billion in 2008.

But with the administration of President Barack Obama keen to expand exports and jobs, the deficit remains a point of friction between the two powers, which have also been at odds over human rights, Tibet and U.S. arms sales to Taiwan.

The U.S. Senate bill, a rare show of bipartisan accord, adds to pressure on Obama, whose administration must decide whether to label China as a currency manipulator in a semi-annual Treasury Department report due on April 15.

Many U.S. lawmakers, with strong backing from economists, believe the yuan is undervalued by at least 25 percent, giving Chinese companies an unfair edge in trade — one seen as more critical now that the U.S. economy is struggling to recover from the worst downturn since the 1930s.

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