Many had thought China will again hold back the report written by staff of the Washington-based International Monetary Fund after annual consultations with Beijing.

But the Asian giant turned the tables on them.

The 37-page report released Thursday charged that China's yuan was “substantially” undervalued despite Beijing's decision more than a month ago to let the currency be traded more freely.

The yuan “undervaluation is counterproductive and acts as a headwind to increasing private consumption,” a key component of China's strategy to wean away from its traditional dependence on exports, the report said.

But the Chinese authorities argued in the report that they “are prepared to allow the exchange rate to respond more to the forces of demand and supply” under a “market-determined” managed floating regime announced on June 19.

Aside from their difference in views on the yuan, which the United States and other nations think has been kept low by Beijing for a trade advantage, the IMF staff and China also crossed swords on China's current account surplus — the broadest measure of its trade with the world.

Beijing argued that China's current account surplus would remain about four percent of gross domestic product in a few years whereas the IMF staff projected that it will revert back to eight percent of GDP.

China's current account surplus levels are critical, particularly to Washington, because they also reflect the extent of trade deficit the United States suffers with the Asian power.

Often blaming the burgeoning trade deficit with China on the undervalued yuan, U.S. lawmakers have been pushing Beijing to allow its currency to rise, saying it could reduce the flood of red ink.

Last year, the deficit rose to a whopping US$227 billion.

Analysts believe that Beijing agreed to release the IMF staff blueprint because it felt the language of the report was quite balanced and at the same time clearly portrayed the Chinese position.

In addition, the report contained the views of the IMF executive board, which was mildly critical of Beijing as opposed to the staff position.

Under IMF rules, economies can choose whether to allow the staff reports to be publicly released.

“The fact that the IMF executive board was clearly much more supportive of China's currency policy than the IMF staff seem to have been, may also have emboldened China because it feels that it has fewer detractors in the international community,” Eswar Prasad, former head of the IMF China division, told AFP.

It “signals increasing confidence on China's part that it can control the debate about its currency,” said Prasad, an economics professor at Cornell University.

The IMF executive directors, in a report Tuesday on the consultations with China, said not all of them agreed that the yuan exchange rate was undervalued.

The executive board also accused the staff of using “uncertain forecasts” in making China's current account surplus projections.

“This flip-flopping is a clear indication of how difficult it is for foreign bodies to get their hands on yuan policy,” noted Kathy Lien, director of currency research at Global Forex Trading.

Some IMF insiders, speaking on condition of anonymity, were surprised by the position taken in particular by India and Brazil at the executive board on the yuan issue. One of them suggested “arm twisting” by China.

India, which had been pushing for a stronger yuan, was “quite neutral” in its statement at the board while Brazil, which had also publicly called for accelerated yuan appreciation, made a turnaround and backed Beijing, they said.

The Group of Seven developed economies basically agreed with the IMF staff position but also praised China for already taking steps to make their currency more flexible.

“It was somewhat muted criticism even from the G7, so the only statement that could be considered as mildly supportive of the staff, and not even moderately supportive of the staff, was the US position,” one source said.