Hands Off Our Yuan, Says China

The US was accused of seeking to "smash the rice bowls of the workers" as treasury secretary John Snow flew into China yesterday with the issue of cheap exports top of his agenda.

The state-controlled media railed against "international browbeating" and "outside pressure" ahead of Mr Snow's expected call for a revaluing of the renminbi.

Despite the smiles and handshakes from leaders of the world's fastest growing economy, Mr Snow received only the smallest of concessions as he prepared to broach the sensitive issue of the currency's peg to the dollar, unchanged for almost a decade.

US manufacturers say the renminbi is undervalued by 40%, creating an unfair trade advantage for Chinese exporters that has cost more than 2m American jobs. The issue has been raised by congressmen and is likely to be a theme of next year's presidential election.

"It is important we retain flexibility in currency markets so US manufacturers are not disadvantaged," Mr Snow said ahead of his visit. "My long-held view is that a well functioning international financial system is one based on flexible exchange rates determined in competitive markets."

Mr Snow had met Japanese finance minister Masajuro Shiokawa in Tokyo where the two men agreed to try to persuade China to allow its currency to appreciate.

"China seems to be keeping the yuan [the other name for the renminbi] fixed and this is not competitive from an international financial viewpoint," Mr Shiokawa said yesterday.

The International Monetary Fund added its voice, with managing director Horst Köhler saying that floating the renminbi "would improve the central bank's ability to control money and credit growth, and also help to cushion China's economy from domestic and external shocks."

The Chinese are unwilling to see the renminbi appreciate, hurting exporters and undercutting the nation's attempt to catch up economically with developed nations.

In a commentary headed "Don't meddle with the yuan", the China Daily said the country's sovereign right to decide exchange rates should not be violated just because it has be come a US election issue. "A more expensive renminbi will artificially hurt the competitiveness of China's exports and smash the rice bowls of the workers whose livelihoods rely on trade."

In the smallest of conciliatory gestures, the Chinese government announced an adjustment of capital controls that raised the amount of foreign currency Chinese travellers can buy from banks. The move is thought unlikely to make much difference to China's trade surplus with the US - $103bn last year.