China said on Wednesday it "could not be any clearer" in its repeated commitment to a stable exchange rate after the U.S. Congress threatened to levy duties on some Chinese exports if it fails to revalue its currency.
The temperature in the long-running dispute over China 's exchange rate regime is rising quickly, with a bipartisan bill introduced on Tuesday in the U.S. Senate that aims to get Beijing to let the yuan rise.
Focusing on the yuan will not help to solve problems in the Sino-U.S. bilateral trade relationship, a Chinese commerce ministry official told Reuters.
"We oppose the over-emphasis on the yuan's exchange rate," the Chinese official said, when asked about the bill.
The apparent hardening of positions drove the yuan to a three-week low against the dollar in the offshore forwards market, implying just 2.4 percent of appreciation over the next 12 months.
The World Bank weighed into the debate too, raising its 2010 growth and inflation forecasts for China and recommending a tighter monetary policy and stronger exchange rate to restrain inflation expectations and asset bubbles.
The Chinese official, who spoke on condition of anonymity, said that the government's stance on the yuan had been consistent and was unchanged.
The official cited Premier Wen Jiabao and Commerce Minister Chen Deming, who have said that a stable yuan has contributed to both the Chinese and global economic recovery.
"We have repeated ourselves multiple times. And we cannot be any clearer," the official said.
The Senate bill, a rare show of bipartisan accord, reflects widespread U.S. concern about high unemployment. But the open confrontation could make it difficult for Beijing to back down on its controversial exchange rate policy, for fear of appearing weak in the eyes of the domestic public.
China has held the yuan in a de facto peg at about 6.83 to the dollar since mid-2008 to cushion its exporters from the global financial crisis. Rising inflation and recovering exports had fueled market expectations that Beijing was on the cusp of resuming the gradual path of appreciation followed for three years starting in mid-2005.
The Chinese commerce ministry official rejected the argument that the country's yawning trade surplus with the United States and broader global economic imbalances were due to the yuan.
"Focusing on the yuan's exchange rate is not an effective way to address trade issues between China and the United States," the official said. "The yuan's exchange rate is not a magic potion for solving global economic imbalances."
The official repeated the Chinese government's long-standing position that the United States could expand its exports to China by lifting restriction on the exports of high-tech products.
The World Bank, in its latest update on the world's third-largest economy, said a stronger exchange rate would help dampen inflation pressure by lowering the price of imports. It would also help rebalance China 's growth towards services and consumption and away from industry and investment.
"Over time, more exchange rate flexibility can enable China to have a monetary policy independent from U.S. cyclical conditions, which is increasingly necessary," the report said.
The United States ' annual trade gap with China fell to $226.8 billion in 2009, down from a record $268.0 billion in 2008. But with the Obama administration keen to lift exports and employment, the deficit remains a point of friction between the two powers, which have also recently been at odds over human rights, Tibet and U.S. arms sales to Taiwan.
Wen on Sunday recommitted China to pushing ahead with reform of the yuan's exchange rate mechanism, leaving the door open to reintroducing exchange rate flexibility if it suits Beijing.
But the premier also said that the yuan was not undervalued and said that calls for appreciation were a form of protectionism.
The U.S. Senate bill adds to pressure on U.S. President Barack Obama, whose administration must decide whether to label China as a currency manipulator in a semiannual Treasury Department report due on April 15.
Many U.S. lawmakers, with strong backing from economists, believe the yuan is undervalued by at least 25 percent, giving Chinese companies an unfair price advantage in trade — a situation seen as more acute now that the U.S. economy is struggling to recover from the worst downturn since the 1930s.
Dan Ikenson, a trade policy analyst at the Cato Institute, said he feared the legislation could inflame relations with China without accomplishing the lawmakers' goal of reducing U.S. imports from that country.
He noted that when the yuan rose 21 percent in value between July 2005 and July 2008, the U.S. trade deficit with China actually increased from $202 billion to $268 billion.
Foreign pressure on China to let the yuan rise is counterproductive and doomed to fail, former European Commission President Romano Prodi said earlier this week.
"The higher the rank of a politician who declares China must revalue the renminbi, the longer the delay will be in the possible revaluation. You can almost have a mathematical formula," Prodi said.
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