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March 13, 2010

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China: US shouldn't pin its difficulties on yuan

The United States should not make a political issue out of the yuan, a Chinese central banker said yesterday.

People's Bank of China Vice Governor Su Ning was responding to a question about remarks on Thursday by US President Barack Obama, who called on China to move to a "more market-oriented exchange rate."

Speaking on the sidelines of China's annual session of the top political advisory body, Su said the United States should look to itself to boost its exports and not cast blame on other countries.

"We always refuse to politicize the yuan exchange-rate issue, and we never think that one country should ask another country for help in solving its own problems," he said.

Obama's comment about the currency comes as his administration faces a decision over whether to label China a "currency manipulator" in a semi-annual Treasury Department report due on April 15.

With Obama facing domestic pressure to take a tough line against China, this US Treasury report could be a tipping point.

China halted the yuan appreciation in mid-2008 to cushion the country from the global credit crunch.

Scattered trade spats between the two countries could escalate into a full-fledged dispute, with the US even considering across-the-board tariffs against Chinese products.

"The chances of a collision have never been higher," Stephen Green, China economist for Standard Charter, told Reuters. "In the United States, the debate has moved from 'is the renminbi a problem' to 'how do we resolve this problem?'"

The Chinese currency is also called the renminbi.

Asked whether it might be counter-productive for Washington to ratchet up pressure over the yuan, Green said: "That's the US$64 billion question to which no one really knows the answer."

Li Jianwei, a director in Development Research Center, a think-tank under China's Cabinet, was unequivocal: demands for aggressive yuan appreciation will harm not only China but also the US and others.

"A stronger yuan will hit exports and lead to a double dip in the Chinese economy, which in turn will hamper the global economic recovery," Li said.

Still, with inflation fast creeping up, investors are beginning to wonder just when the Chinese government will allow the yuan to rise again.

Data this week showed that China has considerable growth momentum and mounting price pressures, leading many analysts to conclude that the central bank will soon increase reserve requirements for the third time this year.

The central bank has been trying to dispel worries over inflation after consumer prices rose more than expected to 2.7 percent in the year to February from 1.5 percent in the year to January.

"We had expected that February's CPI would be higher than January," Su said yesterday. After adjustment for seasonal factors, month-on-month inflation did not show any sign of accelerating, he said.

"We are still observing to see whether the price trend is upward or downward, but we hope prices can move down a little bit," Su said.

He said inflation is likely to peak in June or July.


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