Geithner's China Jaunt May Signal Easing of Tensions on Yuan

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In a surprise move, Treasury Secretary Timothy Geithner will meet with Chinese Vice Premier Wang Qishan in Beijing today (Thursday), as speculation increases that China is considering letting its currency, the yuan, rise against the dollar.

The unexpected meeting was arranged on-the-fly after Geithner's scheduled trip to India, and may be a sign that both countries are seeking to defuse the currency issue ahead of Chinese President Hu Jintao's trip to Washington next week.

The move follows the Treasury Department's decision last weekend to delay a decision on whether to label China a "currency manipulator."

"[China is] becoming more open to the world, and with that, you're going to see the [yuan] take on a broader role internationally," Geithner said in a Bloomberg Television interview in Mumbai as he finished preparations for the previously unscheduled visit to China. "That's a healthy, necessary adjustment."

Geithner will meet Wang, who helps oversee the nation's financial policy, on the return leg of a two-day visit to India. Geithner and Wang have been looking for "an opportunity to meet in person for some time." Andrew Williams, U.S. Treasury spokesman, told reporters.

The currency issue is sure to come up, although an agenda for the meeting, which will be closed to the media, has not been disclosed. China's Foreign Ministry declined to immediately comment on the matter, while the central bank, and commerce and finance ministries told The Wall Street Journal they were unaware of the meeting.

It is unlikely, however, that the meeting will result in any immediate announcement by Beijing of a change in its currency policy, as Chinese leaders have said repeatedly they won't make any policy change in response to public pressure from Washington.

Chinese President Hu Jintao and U.S. President Barack Obama are scheduled to meet next week on the sidelines of a nuclear-security summit in Washington. The U.S. has already announced the currency issue will be a matter of discussion between the two leaders.

Chinese government economists applauded the U.S. Treasury's decision this week to delay its semiannual report to Congress. The decision was seen as a concession from the United States and has fueled speculation that China might adjust its exchange rate policy in coming months.

A growing number of U.S. lawmakers have implored the administration to label China a "currency manipulator" in the report, claiming Beijing deliberately undervalues the yuan to give its exports a competitive advantage in global markets.

The Chinese currency has been effectively pegged against the dollar since mid-2008, after appreciating slightly during the three years prior to the recession. Although the manipulator label would be largely symbolic, Beijing has expressed anger over the idea and such a move could complicate the decision over whether to let the yuan rise.

Chinese officials have been vague about their plans for the currency.

Central bank governor Zhou Xiaochuan said last month that "sooner or later" China will end the contingency measures it adopted during the global recession. And other senior officials have contended that a yuan appreciation might hurt China's exporters.

Chinese Premier Wen Jiabao has repeatedly rejected calls to let the yuan appreciate.

"I don't think the renminbi is undervalued," Wen said at a press conference in Beijing, using the Chinese currency's official name.

Some economists increasingly think a widening of the yuan's daily trading band might be a likely compromise solution, because it would allow China to publicly signal it is moving towards more flexibility, while allowing it to retain control over the direction of the yuan's value, The Journal reported.

Trading in Yuan forwards in Hong Kong pushed futures near the highest level in 11 weeks on speculation the central bank will scrap the 21-month-old peg to the dollar as part of efforts to limit inflation.

The trading means investors were betting the currency will climb 2.9% from the spot rate of 6.8256, Bloomberg reported. A stronger yuan would make imports cheaper and to help contain inflation, which reached a 16-month high of 2.7% in February.

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