China will keep the yuan basically stable while alerting exporters to potential risks to minimize their losses, a powerful central planning agency said in a statement reported on Wednesday.
The National Development and Reform Commission did not elaborate on what such risks might entail, but the wording hinted at China's readiness to resume appreciation after locking the yuan in place since mid-2008 to cushion exporters from the global economic downturn.
In another sign that Beijing might be nearing a consensus about appreciation, the central bank set the yuan's daily mid-point, its key reference rate, at 6.8259 to the dollar, the highest since May last year, though still well within the tight range of the past 20 months.
"We should keep the yuan basically stable at a balanced and reasonable level, while strengthening analysis and monitoring and making announcements about risks in a timely manner to reduce exporters' risks and losses," the NDRC was quoted as saying by the official China Securities Journal.
The NDRC has a stronger voice than almost any other government agency, including the central bank, in China's decision-making process about the currency.
Following a battery of "stress tests" to examine how exporters would cope with appreciation, its comments were a strong indication that the government wants to warn firms to prepare for a stronger currency that could erode their already-thin profit margins.
Speculation that Beijing will let the yuan start rising in the next few months has been fueled by an easing of Sino-U.S. tensions over the currency in recent days.
U.S. Treasury Secretary Timothy Geithner said at the weekend that he was delaying an April 15 report on whether China manipulates its currency, ahead of a visit by Chinese President Hu Jintao.
Chinese Vice Foreign Minister Cui Tiankai declined to say whether the two countries would discuss the yuan in Washington, where Hu will attend a nuclear security summit on April 12-13.
Cui said that the United States and China had "different views" on financial and economic issues, while sharing "broad common interests". He added that there would be "an in-depth exchange of views on a broad range of issues".
The White House said on Tuesday that President Barack Obama would raise the currency issue with Hu on the sidelines of the summit.
Washington and Beijing are trying to cool bilateral tensions after U.S. arms sales to Taiwan and China's dispute with Google over Internet freedom made for a rocky start to 2010.
The United States wants Chinese diplomatic help in curbing nuclear proliferation in Iran and North Korea.
The yuan rose ever so slightly in the spot market on Wednesday, reaching 6.825 to the dollar, its strongest this year. Off-shore forwards were pricing in about 1.6 percent appreciation over the next six months and 3.0 percent over the next 12 months, slightly weaker gains than had been implied on Tuesday.
While Washington's delay of the currency manipulator report may give Beijing the political space needed to resume yuan appreciation, most analysts think it will allow only a small rise, because it remains concerned about the solidity of the economic recovery.
Data due this Saturday is expected to show that China recorded a trade deficit in March, its first monthly deficit since April 2004.
Although economists think the deficit will be a one-time occurrence and not the start of a new trend, it could still give officials pause before pushing through aggressive yuan appreciation.
The Chinese government, particularly the commerce ministry, has repeatedly insisted that the yuan should be held stable until exports have recovered strongly.
In Wednesday's report, the NDRC pledged to help exporters move up the global value chain by upgrading their products — one survival strategy as the yuan strengthens — while also continuing to support exports of labor-intensive products.
China will ultimately decide more yuan flexibility would benefit it, U.S. Treasury Secretary Timothy Geithner said on Tuesday, adding that it was "China's choice" whether or not it revalues the yuan.
With U.S. unemployment stuck near 10 percent, Obama faces pressure to persuade Beijing to allow the yuan to appreciate so as to help U.S. firms compete with Chinese goods.
Critics, including many U.S. lawmakers, say the yuan's value represents an unfair subsidy that costs jobs in many countries.
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