MercoPress. South Atlantic News Agency

US pushing for a stronger Yuan, but China remain reluctant

China has in effect re-pegged the Yuan to the dollar since mid-2008 to help its exporters.

The United States welcomes the rise in the Yuan's exchange rate in recent years but wants the currency to climb further, visiting Commerce Secretary Gary Locke said. However, a Chinese trade official said that despite pressure for the Yuan to appreciate, the currency would probably not see a major adjustment until the country's exports improve noticeably.

“We think more progress needs to be made in that area” Locke told a news conference in Guangzhou, the capital of southern Guangdong province, which accounts for nearly a third of China's exports.

China has in effect re-pegged the Yuan to the dollar since mid-2008 to help its exporters, who were hit hard by a slump in orders as the global financial crisis intensified.

Beijing re-valued the Yuan by 2.1% against the dollar in July 2005 and, over the following three years, gradually let it climb by another 19% before calling a halt to its rise.

Speaking at a separate forum in Beijing, Jiang Jianjun, a deputy director with the Ministry of Commerce's Department of Foreign Trade, cited China's rising share of global output and its swelling foreign exchange reserves as pressures on the Yuan to strengthen.

“However, according to our projections, until there's a noticeable improvement in exports, the exchange rate will not see a major adjustment” Jiang said. He added that it would take two or three years for China's combined exports and imports to regain pre-crisis levels.

The US Commerce chief will participate in trade talks in Hangzhou, along with US Trade Representative Ron Kirk and Chinese Vice-Premier Wang Qishan. Locke said he expected the meetings to pave the way for “significant improvements and progress in the trade relationship between the two countries” when President Barack Obama visits China next month for talks with President Hu Jintao.

The Yuan's exchange rate has dropped down the U.S. diplomatic agenda in the past year as Washington has looked to China for help in hauling the world economy out of recession. The Obama administration said on Oct. 15 that it continued to believe the Yuan is undervalued but declined to declare that China was manipulating its currency.

But the Treasury Department, in a semi-annual report to Congress on currency practices of key trade partners, said China was piling up foreign exchange reserves at a rate that threatens progress in reducing global economic imbalances.

It warned that lack of flexibility in the exchange rate for the Yuan might be damaging as stimulus is withdrawn and overseas demand for Chinese-made goods returns.

Currency traders in the non-deliverable forwards market were anticipating that the yuan would be worth 2.4% more against the dollar in a year's time.