China commences talks with US over yuan policy

Talks have commenced between China and the US today with the main issue to be the Chinese currency.

Hillary Clinton is leading the US delegation as the US argues that China’s currency policy unfairly favours its exporters.

US legislators and trade groups say the yuan, which is also referred to as the renminbi, is kept up to 40% below what its value should be against the US dollar.

The Chinese currency pegged the US dollar until 2005 when it was allowed to rise in value by about one fifth.

The peg was reinstated in July 2008 when the global financial crisis took hold, amid US concerns of the impact on trade.

However, in March, China said keeping the yuan stable is “an important contribution” to global recovery.

The country’s Government has been under pressure to allow the yuan to find its own level in order to ease inflation, which is currently at an 18-month high.

Speaking at the opening of the talks, Chinese President Hu Jintao said: “China will continue to steadily advance the reform of the formulation mechanism of the renminbi exchange rate under the principle of independent decision-making, controllability and gradual progress.”

His comments were welcomed by US Treasury Secretary Timothy Geithner, who together with Secretary of State, Hillary Clinton, are leading the US delegation at the two-day talks in Beijing.

Mr Geithner said: “We welcome the fact that China’s leaders have recognised that reform of the exchange rate is an important part of their broader reform agenda.”

However, no timetable for the exchange rate reform was given.

Last month, it was revealed that China’s economy, which is the world’s third largest, expanded at an annualised rate of 11.9% in the first three months of the year.

However, despite the strong growth, economists have cautioned that the economy is expanding too quickly and there is a risk of overheating.

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