(Reuters) - China displayed new divisions on Tuesday over how to respond to mounting U.S. pressure to let its exchange rate rise.
"It has been proved both in theory and practice that the appreciation of a nation's currency provides little help for improving the balance of payments," Chen said in a detailed defense of China's trade policy.
The clock is ticking down toward an April 15 ruling by the U.S. Treasury on whether China is deliberately manipulating its currency to keep its exports competitive and gain an unfair advantage in global markets.
Separately, U.S. lawmakers have said they will introduce legislation to impose tariffs on Chinese goods unless Beijing allows the yuan to climb.
"It does not help if one side, driven by its political agenda at home, puts pressure on the other with unwarranted threats of trade sanctions," Chen said.
To better get its point across, the ministry issued Chen's statement in English as well as Chinese.
ACT BEFORE SEPTEMBER
Beijing allowed the yuan to rise 21 percent against the dollar between July 2005 and July 2008 before effectively repegging the currency, also known as the renminbi, near 6.83 to the dollar to help exporters ride out the credit crunch.
The Ministry of Commerce is a staunch defender of Chinese export industries and has repeatedly warned that many would be ruined if they had to cope with a stronger exchange rate.
The central bank, by contrast, would benefit from having an extra tool in its policy kit if the exchange rate were able to rise and fall to help absorb economic shocks.
"(China) should resume the pre-crisis managed floating exchange rate as quickly as possible," Xia Bin, a researcher with the Development Research Center, a think-tank under the cabinet, told Reuters.
Xia was one of the three economists named on Monday as members of the People's Bank of China's monetary policy committee, a key advisor in framing monetary policy.
Big decisions on exchange and interest rates, however, are taken by political leaders, not the central bank.
Li Daokui, another new member of the advisory body, said China should scrap its peg to the dollar before September.
"One way of relieving pressures on the renminbi exchange rate is to make an adjustment on China's own initiative," Li, an economist at Tsinghua University, was quoted by Caijing magazine as saying.
Li singled out September as a deadline so that political debate over the yuan does not boil over in the run-up to U.S. mid-term elections in November.
In a cover story, Caijing cited unidentified sources as saying that Beijing was studying the option of dropping the yuan's peg as soon as next month.
WASHINGTON AND TOKYO
If the administration of President Barack Obama does name China as a currency manipulator, it would be required to open intensive talks with Beijing on the issue.
Obama told China's new ambassador to Washington that he wanted to "further develop" a positive relationship with China.
Asian governments have been far more reluctant than those in the West to pressure China to let the yuan strengthen for fear of economic or political repercussions. China's strong rebound from the crisis has helped the entire continent recover much faster than Europe or the United States.
China's exchange rate could also be on the agenda when Japanese Finance Minister Naoto Kan visits Beijing this weekend.
Asked whether the yuan would come up at his talks with Chinese officials, Kan said: "I have not yet decided what to do at this point, but we may discuss this topic depending on the course of dialogue.
Many economists warn that criticism from the West could make Beijing shy away from loosening its grip on the currency, though policymakers are widely expected to allow some yuan appreciation this year if the economy continues to recover.
Offshore forward markets on Tuesday were pricing in an expected rise of 2.6 percent in the yuan over the next 12 months. A Reuters poll last week pointed to 3 percent appreciation in the coming year.
Huang Haizhou, a managing director of China International Capital Corp, the country's leading investment bank, joined in the chorus of calls for a stronger yuan.
"An appropriate appreciation of the renminbi would be to China's own benefit," Huang wrote in the March issue of the International Economic Review, a Chinese-language policy journal.
"This could increase the flexibility of monetary policy, develop financial markets, expand domestic consumption and promote structural adjustment of the economy, helping to keep a balance between inflation and exchange rates.
Additional reporting by Chris Buckley in Beijing and Tetsushi Kajimoto in Tokyo; Writing by Zhou Xin; Editing by Alan Wheatley & Jan Dahinten
Reuters
