Political pressure has been mounting on Beijing to revalue the yuan. Trade partners, led by the US, argue the currency is undervalued and provides an unfair trade advantage.

Analysts say the economic conditions for a revaluation are now in place and the decision is essentially political. 'From an economic point of view the best time for revaluation is now,' said Michael Pettis, a professor at Peking University's Guanghua School of Management. 'There's really no advantage in waiting.'

In his statements yesterday, Mr Zhou seemed to indicate China would implement policies other than a revaluation to ease pressure from trading partners. Raising the proportion of consumer spending in China's overall GDP has been a long-term goal of the government for years.

At present, fixed-asset investment makes up about 50 per cent of GDP and is rising. The government hopes to raise consumer spending and reduce the proportion of investment in the economy while avoiding a pronounced slowdown in overall growth.

Premier Wen Jiabao recently announced a target of 16 per cent fixed asset growth for this year, despite a growth rate in the first four months of 25.7 per cent.

The hope is that consumer spending will be able to take up the slack as investment starts to fall but the problem for Beijing is how to encourage consumers to part with their hard-earned yuan.

'While US consumers save too little and consume too much, in China they're saving too much and consuming too little,' said Mr Pettis.

Savings rates in China are very high and reflect widespread concern over the lack of a social safety net, a problem that no government initiatives can fix in the short term.

The government has few tools it can use to encourage higher consumption. 'One of the only things they can do is cut income taxes in order to boost household spending and consequently increase import demand,' said Tim Condon, head of Asian research at ING. 'You need these tax cuts to increase consumer spending rather than increase investment.'

Besides tax cuts, the government could also remove the tariffs that remain on some imported goods and provide greater access to consumer credit, although this has the potential to lead to a rise in non-performing loans, the single biggest threat to China's economy, according to Mr Pettis.

Given the government's lack of options, it is very unlikely the trade surplus can be brought down to zero.

In the first four months, China exported US$22 billion more goods than it imported. James McCormack, head of Asia sovereigns at Fitch Ratings, believes it is 'not inconceivable' that the trade surplus will reach US$100 billion by the end of the year.

If the government does manage to slow investment, this will probably contribute to the country's imbalance, considering capital goods used in fixed asset investment make up 40 per cent of China's imports at present.

In an interview last week, commerce minister Bo Xilai said China was trying to balance its growing surplus by encouraging the import of high-technology goods from the US.

A revaluation is still considered the best way to even out China's trade imbalance, according to Mr Condon, and he expects the government to move the yuan to a wider trading band, essentially an upward revaluation, within the next two months.

At yesterday's conference, Mr Greenspan and Mr Trichet said it was in China's interest to relax the yuan's peg, while Mr Muto said he expected China will carry out a smooth revaluation of the yuan.