China pressed to let yuan rise

NEW YORK: Behind-the-scenes currency tensions are rising across Asia as United States President Barack Obama begins a tour of the continent and China plays a "will they, won't they" game over whether it might soon allow the yuan to appreciate.

While the long dispute between the US and China over the value of the yuan is expected to be high on the agenda when Obama reaches Beijing next week, China already faces pressure from its neighbours to abandon a link with the dollar they say is crimping their own recoveries.

The latest draft of a post-meeting communique from the Apec summit of Asia-Pacific nations in Singapore, which Obama is to join this weekend, calls for "market-oriented" exchange and interest rates - in effect an argument for the yuan to appreciate against the dollar.

China has been accused of holding its currency artificially low to stimulate its own export-led economy, at the expense of manufacturing profits and jobs elsewhere.

Its central bank, which holds the world's largest foreign exchange reserves of over US$2 trillion, said this week it would consider major currencies in guiding the yuan, suggesting a departure from an unofficial dollar peg in place for over a year.

Analysts said the move was the clearest signal yet that it was close to letting the yuan appreciate after an 18-month hiatus.

"The message we draw from the shift in the carefully chosen words is that trend decline in the dollar will no longer be resisted to the same degree," said Westpac analysts.

"We expect greater movement ... soon, quite possibly ahead of Obama's meetings with top Chinese officials next week and with a European delegation also arriving in China before year-end."

But Assistant Finance Minister Zhu Guangyao told reporters at Apec that one of China's contributions to the global economic recovery had been maintaining "currency stability".

There would be a "big cost" for any early withdrawal of its measures to boost the economy, including fiscal, monetary and exchange-rate commitments, he said.

The yuan's low value has been exacerbated by the declining US dollar, to which it is linked and which is down 15 per cent from a peak this year.

Emerging-market central banks are estimated to have spent US$150 billion in the past two months intervening to keep their own currencies down by buying dollars, fearful of a loss of competitiveness against the US and China.

The US, meanwhile, is facing calls to intervene to push up the value of its currency.

Tim Geithner, the Treasury Secretary, spoke again this week about the special responsibility of the US to protect the value of the dollar, which is used as a reserve currency around the world, but his commitment was only to pursue fiscal policies that would eventually pay some of his country's record debt.

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