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China tensions with West over yuan seen growing

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China tensions with West over yuan seen growing -paper
Thu Mar 4, 2010 10:10pm EST

HONG KONG, March 5 (Reuters) - The United States and other Western nations will likely increase pressure on China to allow its currency to appreciate, China's former ambassador to the United States said in a newspaper report published on Friday.

"America's speculation towards the yuan exchange rate (appreciation) issue could heat up," Hong Kong's pro-Beijing Wen Wei Po newspaper cited Zhou Wenzhong, China's former ambassador to the United States, as saying.

"What's more, other developed Western countries may join in."

China has frozen the yuan exchange rate at about 6.83 per dollar since mid-2008 to preserve the international competitiveness of its exporters, causing dismay in Washington and Brussels.

Earlier this week, a senior International Monetary Fund official urged Beijing to be more flexible on its currency and a group of U.S. lawmakers last month called on the Obama administration to consider retaliatory action against what they say amounts to a government subsidy for Chinese exporters.

Zhou, a standing committee member of China's top advisory body, the CPPCC, delivered a speech during the country's annual parliamentary meetings in which he warned that in the post-financial crisis era there might be more bilateral economic and trade frictions.

"The 'China economy threat theory' may escalate again," he was reported as saying by Wen Wei Po. "Tensions will increase".

Washington has long argued that China's currency, the yuan CNY=CFXS, is undervalued, exacerbating the United States' trade deficit. The Peterson Institute for International Economics in Washington has estimated that the yuan is undervalued by about 40 percent against the U.S. dollar.

In his annual address to the National People's Congress on Friday, Premier Wen Jiabao signaled continued caution towards the yuan, reiterating standard language that Beijing would seek to keep the currency basically steady at a reasonable and balanced level.

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