WRAPUP 1-China tries to cool yuan brawl with U.S.

Fri Mar 19, 2010 12:54am EDT

* China Vice Commerce Minister to visit U.S., March 24-26

Currencies

* China says politicisation will disrupt dialogue

* Other countries express worries about yuan policy,dispute

* Offshore forwards imply 2.5 percent rise over the nextyear

By Chris Buckley and Simon Rabinovitch

BEIJING, March 19 (Reuters) - China on Friday said it wassending an envoy to the United States to try to ease tradefrictions as its currency regime comes under fire, butcautioned that pressure from U.S. legislators would complicatetalks.

The announcement, and comments by China"s commerceministry, appeared aimed at lowering the temperature in anincreasingly heated dispute, with U.S. senators threatening toslap duties on Chinese products if Beijing does not allow theyuan to rise.

"Channels of communication between our two sides are open.All issues of concern to either side can be discussed throughthese channels," He Ning, head of the commerce ministry"s NorthAmerican division, told a media briefing.

But China gave no indication that it was ready to abandonits commitment to a stable yuan exchange rate and marketexpectations of an appreciation remained muted.

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For a graph on China"s trade surplus and the yuan, clickon:

link.reuters.com/vus34j

COLUMN: Be careful what you wish for on currencies; JohnKemp [ID:nLDE62H1GF]

For an Insider TV clip, see: link.reuters.com/xuv34j

For more, see [ID:nCHINA]

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China said Vice Commerce Minister Zhong Shan will visit theUnited States from March 24-26 for discussions focused on the"Sino-U.S. trade balance and trade frictions".

But demands by the U.S. Congress that Beijing revalue theyuan, which it has held near 6.83 per dollar since the globalcredit crunch struck in mid-2008, will stand in the way ofdialogue, the commerce ministry"s He said.

"This will make the whole situation more complex, imposingan external disturbance on our normal channels ofcommunication. That"s a trend that we do not want to see," Hesaid.

Beijing says this currency stability has benefited theglobal economic recovery. U.S. lawmakers say it is an unfairsubsidy for made-in-China goods that has stolen American jobs.

A semi-annual U.S. Treasury report due on April 15 couldlabel China a "currency manipulator", adding to pressure onBeijing and threatening a deepening rift between the world"sbiggest and third-biggest economies. [ID:nN16106007]

GRADUAL APPRECIATION?

Just last week, market expectations were growing that asolid recovery in Chinese exports and a build-up ininflationary pressure might prod the government to permit yuanappreciation.

Investors have scaled back their bets on any imminent movethis week on the view that Beijing will find it politicallyunpalatable to appear to cave into U.S. pressure.

The yuan was bid just a touch above a three-week low inoffshore forwards CNY1YNDFOR= on Friday, implyingexpectations of 2.5 percent appreciation over the next 12months.

The burst of rancour with the United States has grabbedheadlines over the past week, but China is the world"s largestexporter and the yuan"s exchange rate is an issue that affectsvirtually all countries.

Visiting Washington, Indian Commerce and Industry MinisterAnand Sharma said China"s exchange rate policy created problemsfor Indian exporters.

"We feel that the policy should be such that exportersshould not be disadvantaged," he told Reuters after a speech.

But Kaushik Basu, chief economic adviser in India"s FinanceMinistry, said New Delhi was unlikely to join other states inputting pressure on China to revalue the yuan.

A Japanese deputy finance minister told reporters Chinashould understand global calls for a more flexible yuan but itwould be "wrong" for Washington to resort to sanctions.[nTOE60609M]

In a discussion paper for a meeting of officials from theGroup of 20 industrialised and emerging nations, Canada saidthat stalling on economic and financial reforms agreed at a G20summit in Pittsburgh last year would bring unsustainable debtlevels, higher interest rates and another crisis.

The Canadian discussion paper did not mention China byname, but said in a scenario where rich countries cut deficits,but emerging markets neither let their currencies float, norencouraged their own consumers to spend more, "by 2011,deflation would occur in advanced countries, real interestrates would increase sharply, and growth would stall".[nN18221537] (Writing by Simon Rabinovitch; Editing by Ken Wills and AlexRichardson)

Currencies