Beijing offered a robust defence of its currency policy today, denying that it manipulates the yuan and rejecting the argument that a stronger exchange rate would erase the US trade deficit with China.
A foreign ministry spokeswoman, Jiang Yu, said China would continue to refine its currency regime, but would do so at a time and in a manner of its choosing.
Ms Jiang was speaking after the United States on Saturday said it would delay a report due by April 15th that could have labelled China a "currency manipulator", a finding that would have been sure to draw China's wrath.
With the United States struggling with unemployment near 10 per cent, US president Barack Obama is under pressure from Congress to persuade Beijing to allow the yuan to appreciate.
US lawmakers contend that the yuan, also known as the renminbi (RMB), is grossly undervalued, giving Chinese exporters an unfair advantage in global markets and destroying US jobs in the process.
Ms Jiang said China never manipulates the yuan and called for trade differences to be settled through dialogue.
"The RMB exchange rate is not the main reason behind the US-China trade deficit," Ms Jiang told a regular briefing. "So naturally, RMB appreciation is not the solution to rebalance Sino-US trade."
The United States had a trade deficit with China last year of $227 billion, according to US figures.
The foreign ministry has no say in China's currency policy, which is driven mainly by domestic considerations, such as the need to maintain rapid economic growth and provide jobs.
China has repegged the yuan near 6.83 per dollar since July 2008 to help its exporters weather the global credit crunch. In the preceding three years it had let the yuan gradually climb 21 per cent against the dollar.
Financial markets expect Beijing to permit the yuan to resume its rise some time this year in order to cap inflation and help promote domestic demand.
The yuan rose in offshore forward markets today as traders read the postponement of the "manipulation" decision as a sign of an easing in bilateral tensions that could buy time for Beijing to let the yuan recommence its rise.
The market is now pricing in a 3 per cent rise against the dollar in a year's time.
Ms Jiang said China would indeed keep perfecting its "managed floating exchange rate" but would stick to the three principles it has always followed: any change must be at Beijing's initiative; the manner of the change must be controlled; and it must be gradual.
"We will continue to push forward reform of the exchange rate formation mechanism. The direction will not change," she said.
Reuters