As recently as Nov. 9, People's Bank of China Governor Zhou --iaochuan said he didn't feel much pressure to let the yuan rise, deflecting calls for an increase as exports start to recover and President Barack Obama prepares to discuss the issue in Beijing next week. China's stance risks fueling credit that's surged by US$1.3 trillion this year, according to Fred Hu at Goldman Sachs Group Inc.

China's sales of yuan to keep it fixed to the dollar contributed to a 29 percent jump in money supply, and the peg helped spur more than US$150 billion in speculative funds from overseas in the past six months, China International Capital Corp. says. Record apartment prices and a 74 percent climb in the benchmark stock index this year are prompting warnings that the policy is inflating asset prices excessively.

“If China keeps the peg, it will be powerless to prevent asset bubbles,” says Hu, Hong Kong-based Greater China chairman at Goldman Sachs, the first foreign company to underwrite a domestic Chinese bond offering. “Politicians have a mistaken fear that any appreciation in the renminbi might be harmful to the export sector.”

Investors should sell the stocks of property developers as a way to minimize the risk of a bubble ending in collapse after their share prices gained 155 percent in the past year, Morgan Stanley says.

Obama will attend the summit of the Asia Pacific Economic Cooperation forum in Singapore this weekend before traveling to China on Nov. 15. Calls for greater yuan fluctuations may further escalate when European officials including central bank President Jean-Claude Trichet visit before year-end.

U.S. Treasury Secretary Timothy Geithner Thursday hailed a commitment by Asia-Pacific ministers to flexible exchange rates even as his Chinese counterpart at a Singapore meeting said the yuan's peg contributed to the global economic recovery.

China's drive to create jobs and maintain social stability through export-led growth means politicians aren't ready to loosen controls on the currency, say Hu and Ha Jiming, chief China economist in Hong Kong at China International Capital, the first investment bank formed as a joint venture between a Chinese bank and a foreign firm.

Policy makers have kept the yuan at about 6.83 per dollar since July 2008, seeking to aid manufacturers battered by the collapse in demand abroad. The yuan advanced 21 percent in three years from July 2005, when officials loosened their controls.

Goldman Thursday reiterated its three, six and 12-month forecasts for the yuan to stay at 6.83 against the dollar. The New York-based firm said a PBOC quarterly report on Nov. 11 didn't foreshadow an imminent change. The central bank said currency policy will take into account global capital flows and changes in major currencies.

While the central bank's 5.31 percent benchmark one-year lending rate is lower than the near-zero policy rate maintained by the U.S. Federal Reserve and Bank of Japan, China's faster economic and credit growth rates mean it needs to boost borrowing costs, according to a survey of economists by Bloomberg News.

The central bank will take that step in the second quarter of 2010, the median estimate of 29 economists surveyed Oct. 22- 28 shows. Any move to raise rates would cause additional inflows of international capital that stoke asset prices, analysts say.

“An interest-rate hike would invite capital inflows,” says China International Capital's Ha, who previously worked at the International Monetary Fund and Hong Kong Monetary Authority. “The root of asset-price inflation in China is the lack of an independent monetary policy.”

T.J. Bond, chief Asia-Pacific economist at Bank of America- Merrill Lynch in Hong Kong, says “the peg is a straitjacket on the PBOC, limiting its ability to tighten policy and head off asset bubbles.”

China's benchmark Shanghai Composite Index of stocks has climbed 74 percent in 2009. The US$1.3 trillion in new loans this year ignited private housing investment, which rose 35 percent in August from a year before, accelerating from a 20 percent gain in July, according to New York-based JPMorgan Chase & Co.

China Vanke Co., the nation's largest developer by market value, increased average apartment prices in September, charging 10,168 yuan (US$1,489) per square meter, 26 percent more than a year earlier. Property sales climbed 27 percent in September from a year earlier, according to the company.

Policy makers have said they want to keep the yuan stable to help exporters, even as government figures last month showed gross domestic product rose 8.9 percent in the third quarter and exports dropped by the least since December.

Commerce Minister Chen Deming said Nov. 1 in Guangzhou that the yuan should be kept relatively stable to aid manufacturers and exporters, state news agency --inhua reported. PBOC Governor Zhou, ahead of a G-20 meeting in Scotland this month, said international pressure for appreciation was “not that big.” The same day, Japan's Vice Finance Minister Yoshihiko Noda said Noda it is “desirable for the yuan to be flexible.”

Premier Wen Jiabao didn't mention currency policy in a Nov. 12 speech; in July, he said he favored keeping the yuan stable at a reasonable and balanced level.

“The exchange-rate issue is decidedly off the agenda,” says Goldman's Hu, 46, a former International Monetary Fund economist who speaks with officials on his weekly trips to Beijing. He says policy makers will wait to judge the durability of the global economic and financial recovery before making any change to their stance on the yuan, also known as the renminbi.