Don't politicise yuan, China central bank tells Obama

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The United States should not make a political issue out of the yuan, a Chinese central banker said on Friday, as the two countries lurched towards a potentially serious clash about Beijing's currency regime.

People's Bank of China Vice Governor Su Ning was responding to a question about remarks on Thursday by US President Barack Obama, who called on China to move to a "more market-oriented exchange rate".

Speaking on the sidelines of China's annual session of parliament, Su said the United States should look to itself to boost its exports and not cast blame on other countries.

"We always refuse to politicise the yuan exchange rate issue, and we never think that one country should ask another country for help in solving its own problems," he said.

Obama's rare comment about the currency comes as his administration faces a decision over whether to label China a "currency manipulator" in a semi-annual Treasury Department report due on April 15.

With Obama facing domestic pressure to take a tough line against China and Beijing clinging to a de facto dollar peg, this US Treasury report could be a tipping point.

If China flinches, it may soon resume the yuan appreciation halted in mid-2008 to cushion the country from the global credit crunch. If not, scattered trade spats between the two giants could escalate into a full-fledged dispute, with the US even considering across-the-board tariffs against Chinese products.

"The chances of a collision have never been higher," Stephen Green, China economist for Standard Charter. "In the United States, the debate has moved from 'is the renminbi a problem' to 'how do we resolve this problem'." The yuan is also called the renminbi.

Asked whether it might be counter-productive for Washington to ratchet up pressure over the yuan, Green said: "That's the USD 64-billion question to which no one really knows the answer."

Li Jianwei, a director in Development Research Centre, a think-tank under China's cabinet, was unequivocal: demands for aggressive yuan appreciation will harm not only China but also the United States and others.

"A stronger yuan will hit exports and lead to a double dip in the Chinese economy, which in turn will hamper the global economic recovery," Li said.