Originally published by Reuters, 12 Apr 2010

By Paul Eckert and Caren Bohan

WASHINGTON (Reuters) – President Barack Obama repeated on Monday his call for more yuan flexibility during a meeting with China’s Hu Jintao, deploying careful diplomatic language while Beijing stressed dialogue.

A later report from the official Chinese news agency reflected a stiffer tone from Hu, the Chinese president, but in Washington there was a deliberate effort to stress the cordial nature of the talks.

“The president reaffirmed his view that it is important for a … sustained and balanced global economic recovery that China move toward a more market-oriented exchange rate,” Jeffrey Bader, a top White House adviser, told reporters.

The Obama administration wants to avoid embarrassing Hu over the yuan currency while he attends a nuclear security summit in Washington, shrugging off domestic political pressure for stern words against Beijing.

The U.S. Treasury recently delayed publication of a report that politicians had urged Obama to use to name China a currency manipulator, paving the way to eventual official action.

Foreign currency investors will scrutinize Obama’s and Hu’s words for evidence of a shift in Beijing’s yuan policy. Analysts say this makes sense for China in the long term, but they do not expect significant changes in the immediate future.

A Chinese official in Washington separately characterized the two leaders’ discussions on the sidelines of the security summit here as “positive and constructive”.

Chinese spokesman Ma Zhaoxu said Hu told Obama the two nations “should properly resolve economic and trade frictions through consultations on an equal footing and jointly uphold the larger interests of China-US economic cooperation.”

However, the official Chinese Xinhau news agency later reported Hu had assured Obama that Beijing would “firmly stick” to its own path on the yuan.

Hu also noted that yuan appreciation would neither balance Sino-U.S. trade, now at a huge deficit in China’s favor, nor solve the U.S. unemployment problem.

The news agency said China wants to increase its U.S. imports, especially of high-tech products, and that Hu urged Washington to loosen its export controls of such goods.

Obama must balance geopolitical considerations in dealing with China, America’s largest foreign creditor, against the domestic imperative to show he cares about protecting jobs that U.S. lawmakers have deliberately linked to the yuan.

US JOBS

Politicians complain the foreign exchange value of the yuan is being held down against the dollar by Beijing to boost Chinese exports at the expense of U.S. exports, and thus jobs, and want Obama to take a hard line to push for China to allow it to appreciate.

The pressure comes from Obama’s own Democrats as well as Republicans, with high U.S. unemployment likely to play a dominant role in November’s mid-term congressional elections.

In a carefully nuanced message, Obama has said a more market-orientated yuan would provide an essential aid to global rebalancing, echoing the conclusion of the Group of 20 advanced and developing nations in Pittsburgh in September, which included China. He returned to that theme on Monday with Hu.

“The president also noted his concern over some market-access issues, market-access barriers in China and the need to address them as part of the rebalancing effort,” Bader said.

Beijing runs a massive trade surplus with the United States. Critics claim this shows the currency is undervalued to give the country’s export sector an unfair competitive edge, though Chinese officials say the yuan-dollar peg provided vital stability during the global financial crisis of 2008.

Recent signals from China have encouraged hopes that it was edging toward a more flexible yuan, which analysts say makes sense for China on its own merits regardless of any impact on U.S. trade. But analysts doubt Beijing would do anything that looked like caving to the whims of Washington.

Analysts do say price pressures provide a good reason to let the yuan appreciate, which would tighten Chinese monetary conditions and could help to keep inflation at bay.

http://www.reuters.com/article/idUSTRE63C04M20100413