China will chart its own course in reforming the yuan, President Hu Jintao said as US President Barack Obama renewed his call for a more flexible Chinese currency. The two heads of state, meeting for the first time since Sino-US tensions over the yuan threatened in recent months to escalate into a serious trade dispute, chose their words carefully and, in the view of investors, left the door open for Beijing to resume appreciation in the coming weeks. Hu said China would not be pushed by external pressure and would instead base any decision on the yuan on its own economic needs. But he also made clear that it was committed to reform. “China will firmly stick to a path of reforming the yuan's exchange rate formation mechanism,” Hu told Obama, according to the official Xinhua news agency account of their discussion. “In making reforms, we will give careful consideration to global economic developments and changes, as well as to China's economic condition,” Hu said. The yuan edged down in the offshore forwards market for a second day on Hu's comments, but investors were still positioning themselves for a gradual resumption of the currency's appreciation. Beijing has frozen the yuan's exchange rate against the dollar since mid-2008 to help cushion its economy from the global downturn, but the strength of China's recovery has fuelled criticism of this policy and market expectations that it is about to resume appreciation. Notable by its absence in Hu's reported comments was a declaration, previously a stock phrase for Chinese leaders, that a stable yuan was benefiting the global economy.Obama, for his part, touched only delicately on the yuan, with his focus on the summit at hand and securing Chinese backing for tougher sanctions against Iran's nuclear activities. “The president reaffirmed his view that it is important for a ... sustained and balanced global economic recovery that China move toward a more market-oriented exchange rate,” Jeffrey Bader, a top White House adviser, told reporters. Heavy expectations The US Treasury this month delayed publication of a report that politicians had urged Obama to use to name China a currency manipulator, potentially paving the way for punitive trade measures. China had warned repeatedly that foreign criticism of its currency policy would be counter-productive. Months of tensions – over trade, Internet freedom, Taiwan and Tibet – placed heavy expectations on the 90-minute talks on the sidelines of Obama's nuclear security summit, even if the meeting was unlikely to produce concrete results. “Most importantly, it seems that the atmospherics surrounding the bilateral US-China relationship have improved, opening the door for movement on a number of issues,” said China expert Drew Thompson of the Nixon Center in Washington. Three-month dollar/yuan non-deliverable forwards rose to 6.7610 from Monday's close of 6.7500, pricing in 0.96 percent appreciation within three months versus 1.12 percent. “Political statements won't prevail over economic and market realities. The trend for China to abolish the yuan/dollar peg this year remains intact, with the earliest move possibly coming late this month or in May,” said a senior dealer at a major Chinese bank in Shanghai. No panacea With China's exchange rate policy under intense scrutiny, Hu also used the meeting with Obama to argue that a stronger yuan would not be a panacea for woes afflicting the world's largest economy. “Yuan appreciation would neither balance Sino-US trade, nor solve the unemployment problem in the United States,” Hu said. He added that China wants to increase its US imports, especially of high-tech products. Repeating a decade-old mantra from Beijing, Hu urged Washington to loosen its export controls of such goods. US politicians complain the value of the yuan is being held down against the dollar by Beijing to boost Chinese exports at the expense of US exports, and thus jobs, and want Obama to take a hard line to push for China to allow appreciation. China ran $250 billion trade surplus with the United States last year. – Reuters Recent signals from Beijing have encouraged hopes that it was edging toward a more flexible yuan, which analysts say would suite China's own interests as its economy takes off, with exports recovering strongly and inflation picking up.
