It has become a ritual that Beijing has allowed the yuan to rise against the US dollar in the run-up to the biannual Sino-US Strategic Economic Dialogue since it started in 2006. The yuan rose for a second consecutive week last week, up 0.3 per cent on the week to close at 6.9018 on Friday. This is the Chinese way of showing face for Americans before Vice Premier Wang Qishan meets US Treasury Secretary Henry Paulson in the fourth round of high-level economic talks tomorrow and on Wednesday in Annapolis, Maryland. While energy and the environment are among top concerns, the yuan's appreciation will, as always, be a hot topic, at least in the media. Mainland officials will sound accommodating to the US request publicly, but they are mostly likely to chide the Americans for their weakening US dollar - top of the mainland's own list of complaints - behind closed doors. Mainland officials are expected to be more vocal about the dollar's decline and falling US interest rates, which shrink the value of foreign exchange reserves held by the mainland and other developing countries, and drive up global oil and food prices. Indeed, as economic growth at home throws up more uncertainties, mainland leaders are under mounting pressure to slow the pace of yuan appreciation. The time is about right and leaders have good reasons to do so. First, since Beijing abandoned a fixed exchange rate in 2005, the yuan has appreciated almost 20 per cent against the dollar. That is a lot, although it is nowhere near what US lawmakers have demanded. Among many other reasons behind the yuan's rise, strong political pressure from the Americans, particularly the US Congress, has been the main driver. But this pressure is easing. As the current Congress has one foot out the door, lawmakers have their attention elsewhere. This makes it difficult for them to focus on drumming up support for legislation aimed at punishing the mainland over its currency practices. But mainland officials believe that instead of direct pressure, the US has deliberately allowed the dollar to weaken to boost domestic growth at the expense of other countries and global economic stability. Analysts are absolutely right in concluding there will be few solid results from the two-day talks, mainly because the Bush administration will be out of office in several months' time and Beijing would like to gauge the reaction from the new administration before planning the next step. Second, an increasing number of mainland officials doubt a stronger yuan will help to ease inflation as results of efforts to curb inflation have proved inconclusive over the past few years. While inflation slowed to 7.7 per cent in May, from 8.5 per cent in April, it is still very strong with the rise being driven by soaring food prices. In addition, several other foreign countries have also adopted stronger currency policy to deter inflation but the results have also been less than satisfactory. Expectations of a quick yuan appreciation have brought an influx of more hot money into China. The mainland's foreign exchange reserves gained a record US$74.46 billion in April alone but that month's trade surplus and foreign direct investment combined at US$24.28 billion, leaving US$50.18 billion unaccounted for. It is safe to assume that much of the money was 'hot'. The speculation has come not only from foreign investors but also from state-owned enterprises and private companies which falsify export receipts to move hard currency into the mainland and take advantage of the rising yuan. Thirdly, the rising yuan has already had a devastating effect on processing industries across the country, particularly in the Pearl River and Yangtze River delta regions. Granted, the argument can be made that this would encourage those regions to upgrade their technology and industrial mix away from the labour- and energy-intensive industries and this would in the long-term benefit the mainland's economic growth. But the fact remains that processing industries are a major source of employment for a central government that needs to create between 10 million and 20 million new jobs for graduates each year. And this policy of 'gradual' appreciation, if not changed, will continuously fuel expectations. It is time mainland leaders eased up on the yuan.