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Yuan stirs as Geithner holds talks in Beijing

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1 Yuan stirs as Geithner holds talks in Beijing on Fri Apr 09, 2010 7:29 am


Published April 9, 2010

Yuan stirs as Geithner holds talks in Beijing

Reports say China ready to act, though both sides won't comment on talks

(BEIJING) US Treasury Secretary Timothy Geithner held talks in Beijing on economic ties amid signs China may be ready to act on calls for a more flexible yuan.
Mr Geithner: Meets Vice-Premier Wang Qishan, the cabinet official in charge of economic and financial issues, during an impromptu visit to Beijing

The last-minute visit comes just days before Chinese President Hu Jintao heads to Washington for an international summit on nuclear security - suggesting the two countries are getting their relationship back on track.

The United States and China's other key trading partners have been piling pressure on Beijing to allow the yuan to appreciate, saying it is undervalued and gives the Asian nation an unfair advantage by making its exports cheaper.

Mr Geithner - who started the day in Hong Kong - met Vice-Premier Wang Qishan in Beijing, the cabinet official in charge of economic and financial issues.

'The two sides exchanged views on US-China economic relations, the global economic situation and issues relating to the upcoming economic track dialogue of the second US-China Strategic and Economic Dialogue, to be held in Beijing in late May,' the US Treasury Department said.

Mr Wang also heads the Chinese side for the Strategic and Economic Dialogue with the US.

Neither US nor Chinese officials would comment on the agenda for the talks. The Treasury Department issued a brief statement saying Mr Geithner would head home to Washington directly after his talks with Mr Wang.

The Chinese currency has been effectively pegged at 6.8 to the US dollar since mid-2008, and US lawmakers have been pushing the US Treasury to label China a 'currency manipulator' - a move that would open the door to sanctions.

Democratic and Republican lawmakers accuse China of deliberately undervaluing the yuan, leading to a flood of inexpensive goods and contributing to a trade deficit that soared to nearly US$227 billion in 2009.

But the US Treasury at the weekend announced the delay of a report which had been expected in mid-April that could have slapped China with the 'manipulator' tag, with Mr Geithner saying there were better ways to advance US interests.

Analysts have said Beijing appears ready to shift its position - and Mr Geithner's impromptu trip could be further evidence of efforts to reach a compromise on the thorny issue.

'China definitely needs to make a change and avoid becoming a common enemy of the entire world,' Chen Xingdong, an economist at BNP Paribas in Beijing, told AFP. 'I don't think it will give in too much, but it will do as much as it can afford.'

Researchers at Citigroup said they expect an appreciation of the yuan in the second quarter - meaning before end-June - calling a widening of the narrow daily trading band 'likely'.

The New York Times yesterday reported that Beijing was very close to announcing a 'small but immediate' revaluation of the yuan and would then let the currency fluctuate more widely.

The despatch from Hong Kong quoted people with knowledge of the policy consensus emerging in Beijing.

A late advance in the yuan in Shanghai to 6.8235 per US dollar, its highest rate since October 2009, fanned the talk that change was afoot.

The rise on the day was tiny but nonetheless significant because the People's Bank of China tightly controls the currency's movements through its interventions in the market.

In offshore markets, three-month yuan/dollar non-deliverable forwards fell to the lowest level since July 2008, implying a one per cent rise in the Chinese currency over that period. Other Asian currencies rose in sympathy.

Xia Bin, a recently appointed member of the central bank's monetary policy committee, said China should return to its pre-crisis way of managing the yuan as soon as possible.

Between July 2005 and 2008, China operated a managed float that saw the yuan gradually gain 21 per cent against the US dollar.

Mr Xia said that a big rise in the yuan would harm the global economy and US consumers, who would have to pay more for goods imported from China.

But he acknowledged that engineering a spike in the currency would have the merit of forestalling speculation about a never-ending climb.

'At a certain point, when necessary, it is better to have a quick, prompt appreciation in a bid to fend off speculative capital,' he told reporters in Shanghai.

China has been dropping hints that it is preparing to abandon its de facto US dollar link.

Central bank chief Zhou Xiaochuan has called the yuan's dollar peg part of a special policy to respond to the crisis, while various government departments have been asking exporters how much of a rise in the exchange rate they could cope with.

The New York Times said Mr Zhou appeared to have prevailed over the Ministry of Commerce, which lobbies for Chinese exporters and opposes a stronger exchange rate. -- AFP, Reuters


China has been dropping hints that it is
preparing to abandon its de facto US dollar link.

No No No just RV!!! no more hints!....just DO IT!

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