China sits with economic powers, doesn't buckle to pressure on yuan

WASHINGTON (AFP) - China, invited to the table of the world's top financial powers for the first time, did not appear to buckle to pressure to speed up moves to adjust or end a currency peg that many say distorts global trade flows.
After China joined the Group of Seven economic powers over the weekend for the first time, a central bank official said there was no timetable to make the yuan exchange rate more flexible.
In a speech to a banking group in Washington Sunday, Li Ruogu, deputy governor of the People's Bank of China, said Beijing would move to a more flexible exchange rate for the yuan "when conditions permit."
Li said: "We have already said, time and again, that we are moving towards more market-based, supply-and-demand based, exchange rates. How long it takes, I don't know .... I have no timeframe."
Li said Chinese efforts to cool down investment in some sectors have had positive results. "So far, so good," he said at a meeting on the sidelines of the International Monetary Fund and World Bank annual meetings.
Asked about efforts of US lawmakers to take the currency dispute to the World Trade Organization, Li said it was not a matter for the WTO.
"I don't think it is in the US interest to bring the issue to a high profile," he said.
Speaking to a gathering of the Institute for International Finance, Li said global imbalances were due to the low US savings rate, not China's currency.
Li said that China only earns modest profits from US manufacturers locating in China, adding that the bulk of the profits were earned "by US investors, US distributors, US markets and US consumers."
"So I really don't see any help if you force China to change the exchange rate and help the US economy. You are exercising something to destroy the goose that can give you golden eggs."
China was invited to join finance ministers and central bankers from Britain, Canada, France, Germany, Italy, Japan and the United States at a dinner Friday after a scheduled G7 meeting amounted to belated recognition of Beijing's undeniable weight in the world economy.
At the meeting and in subsequent sessions of the IMF and World Bank, the Chinese came under renewed pressure allow their currency, the yuan, to float freely.
The yuan has been pegged at roughly 8.3 yuan to the dollar since 1994, and the peg has become a politically sensitive topic in the United States and elsewhere, with some saying the currency is artificially low, boosting China's exports at the expense of other nations.
The IMF and World Bank suggested that flexible currencies would held reduce the massive imbalances in trade that are pressuring the dollar. Officials worry that a sharp fall in the dollar may lead to turmoil in global financial markets.
The fear is that a sharp correction in the current account, a broad measure of foreign trade, could occur if foreign investment flows into the United States dry up, as investors seek other outlets.
A free-floating Chinese yuan, according to some analysts, could boost US exports and thereby help reduce the massive US current account deficit, which has contributed to imbalances in the global economy.