Despite US demands, the time is ripe for a drop in yuan's value

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.