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Cary Huang

Denise Tsang

US Treasury Secretary Timothy Geithner begins a surprise visit to Beijing today, apparently to seek a deal for revaluation of the yuan. But China is likely to allow only a symbolic rise in the currency's value for now, said a senior banker familiar with the mainland leadership's thinking.
Geithner's visit was announced yesterday amid a flurry of speculation that Beijing will soon let the yuan resume its rise.
The whirlwind trip, during which he will meet Vice-Premier Wang Qishan ,  in charge of financial affairs and foreign trade, comes  days ahead of a security summit in Washington, hosted by US President Barack Obama, which  President Hu Jintao will attend. The two leaders will hold talks on the sidelines.
The White House said Obama would raise the currency issue in his meeting with Hu, but Foreign Affairs Vice-Minister Cui Tiankai  declined to say whether the leaders would discuss it specifically. 
Cui acknowledged that both nations had 'different views' on financial and economic issues despite also having 'broad common interests'. 
If history is any guide, Beijing will make  a goodwill gesture before an important meeting  with an American president. 
Informed mainland bankers said yesterday that Beijing could widen the yuan's daily trading band and allow it to resume the gradual appreciation that was halted when the global financial crisis struck two years ago.  Beijing allowed the yuan's value against the US dollar to rise by roughly 20 per cent between  2005 and 2008.
Even so, any rise could be limited to between 3 per cent and 5 per cent this year, said the  banker  familiar with the thinking of the leadership. 
Analysts agreed any appreciation of the yuan would be mild, in the range of a few percentage points.
A US embassy spokesman in Beijing said the only meeting Geithner had scheduled  was with   Wang.
'They [Geithner and Wang] have been trying to schedule a meeting for a very long time,' an embassy spokesman said. Confirmation of the meeting had only come through on Tuesday, he said.
A US Treasury spokesman accompanying Geithner on a visit to  India would not discuss the  subject matter of the meeting.
Analysts saw Geithner's visit to China as a last-ditch effort to make some progress on the yuan issue because the Obama administration was coming under mounting pressure from Congress and businesses, which argue an undervalued yuan is undermining the US economy. 
'[It]  suggests the eagerness of both sides to strike some deal on the currency issue at the moment to enable both parties to move on to work on other issues of mutual concern,' Professor Jin Canrong , associate dean of Renmin University's school of international relations, said. 
In another sign Beijing may be moving towards allowing the yuan's value to rise,  the central bank set the currency's daily midpoint, its key reference rate, at 6.8259 to the US dollar - the highest since May,  though still well within the tight range of the past 20 months.
The National Development and Reform Commission, the nation's top economic planner, said  China would  'maintain a reasonable, balanced  exchange rate so that it is basically stable. At the same time we should step up monitoring [of the exchange rate], and release warnings of related risks  to reduce the risks and losses for exporters.'
Ben Simpfendorfer, Royal Bank of Scotland's Hong Kong-based chief economist, said he believed the yuan's value would start rising again because  tensions between Beijing and Washington had eased recently.
'China and the US are inching towards an agreement on the yuan, helped by China's hardening stance towards Iran,' he said. Washington is seeking Beijing's support for tougher sanctions on Iran's nuclear research.
Wang Tao, chief China economist with UBS Securities, agreed  the recent visible improvement in Sino-US relations and a softening of the tone from Washington had given  Beijing room to make a move on the currency. She expects the currency to begin appreciating before the end of June.
Hong Kong exporters will not welcome a stronger yuan, which will make their products less competitive, but some say they expect it  to strengthen by 3 per cent to 5 per cent against the US dollar this year.
'If we do not include a potential rise in the yuan exchange rate in pricing orders, the impact on a factory's profitability will be suicidal,' Jimmy Kwok Chun-wah, managing director of chemicals processing firm Rambo Chemicals, said. 
Kwok is increasing automation at his factories in Shenzhen and Hunan   to reduce labour costs.
China International Capital Corp has said that for every 5 per cent rise in the yuan's rate against the US dollar, costs for textile and clothing exporters will jump 4 per cent.
Tommy Lam Chin-ming, a director of apparel producer Free Dragon Industrial, said it was difficult to put up prices if the yuan strengthened.




Geithner visit fuels talk of yuan rise