BEIJING (AP) — China faces mounting pressure from trading partners to loosen currency controls and is giving signs it might raise the value of the yuan to ease strains on its fast-growing economy.
A stronger yuan could help China’s leaders achieve their goal of making the economy more self-sustaining by boosting consumer buying power and reducing dependence on exports and investment. It could narrow China’s politically volatile trade surplus, making the flood of foreign money pouring into the economy more manageable.
A change might also help defuse tensions with the United States, Europe and other trading partners that complain an undervalued yuan makes China’s exports unfairly cheap and hurts foreign competitors, possibly prolonging the global economic crisis. Some American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act.
Analysts say Beijing might allow the yuan to rise against the dollar before the middle of this year. But they say any increase will be gradual and do little to narrow US and European trade deficits and create jobs.
“Even if China starts to appreciate, the possibility is it will be very slow and gradual, without an immediate impact on trade,” said Nicholas Consonery, an analyst in Washington for Eurasia Group, a consulting firm.
On Friday, Premier Wen Jiabao said in a speech to China’s legislature that the yuan will be kept “basically stable” at an “appropriate and balanced” level this year, though he gave no explanation of what that would mean.
Beijing tied the yuan to the dollar for decades but broke that link in 2005 and allowed it to rise by about 20 percent through late 2008. The government slammed on the brakes after the crisis hit and has held its currency steady against the greenback to help exporters compete as a plunge in global demand wiped out millions of Chinese factory jobs.
The United States and Europe downplayed currency complaints as they worked together with Beijing to revive global growth. But facing pressure to create jobs, they and governments as farflung as Brazil have renewed demands for China to act.