China visit raises hopes of movement on undervalued yuan

MUMBAI - US Treasury Secretary Timothy Geithner visited Beijing yesterday for talks with Chinese Vice-Premier Wang Qishan, in a sign that the two sides are moving toward settling a dispute over China's currency controls.

Geithner is facing demands from Congress to label China a currency manipulator for keeping the value of the yuan at about 6.8 to the dollar, which some US lawmakers say gives unfair advantage to Chinese exporters.

His trip comes four days after he postponed an April 15 deadline for a semiannual review of the currency policies of major US trading partners.

"The US Administration was understandably concerned that we were headed toward a very slippery slope," said Stephen Roach, chairman of Morgan Stanley Asia.

"If we had held to the April 15 deadline, and gone out with a currency manipulation verdict on China, that could have unleashed a very dangerous chain of events."

Wang is a member of the Central Leading Group on Financial and Economic Affairs, with Premier Wen Jiabao, People's Bank of China Governor Zhou Xiaochuan and economic adviser Liu He, according to China experts and non-governmental websites as of September.

"The Secretary and the Vice-Premier have been working together to find an opportunity to meet in person for some time," Williams said. He said the meeting was confirmed a day earlier.

Geithner was to also hold talks with Hong Kong chief executive Donald Tsang, according to the Treasury statement.

Geithner last week said meetings over the next three months will be "critical" to bringing policy changes that lead to a more balanced global economy.

Yuan forwards traded near the highest level in 11 weeks on speculation the Chinese central bank will scrap a 21-month-old peg to the dollar as part of efforts to limit inflation.

Roach said Geithner's visit to Beijing was a "very encouraging" development that offered an "olive branch" to China ahead of a series of meetings.

Chinese President Hu Jintao is scheduled to visit Washington next week for talks with President Barack Obama, and the US and China also are headed toward their annual bilateral economic meetings in May.

US-China relations are thawing after strains caused by US weapons sales to Taiwan, Obama's visit with the Dalai Lama in February and the shutdown of Google's internet search engine in mainland China.

"It appears both sides have taken a step down," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

- BLOOMBERG