Chinese Premier Wen Rejects U.S. & European Pleas, Says Yuan to Stay Stable

China's Premier Wen Jiabao vigorously defended his country's economic policies on Sunday, rejecting calls to let the yuan appreciate, and ratcheting up trade tensions with the United States where lawmakers and economists insist his stance is hindering a global recovery.

"I don't think the renminbi is undervalued," Wen said at a press conference in Beijing, using the Chinese currency's official name. "We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency."

In his once-yearly news conference, Wen blamed Washington for the recent deterioration in what he called China's most important foreign relationship, even suggesting that U.S. efforts to boost its exports by weakening the dollar amounted to "a kind of trade protectionism."

In April, the U.S. Treasury Department will be required by law to declare whether China manipulates its currency - an announcement that could fuel calls in Congress for retaliatory measures against the nation.

A growing group of U.S. lawmakers are proposing stiffer tariffs on Chinese goods to offset an unfair advantage they say arises from the undervalued yuan.

"Chinese officials are alone in their refusal to acknowledge that the yuan is undervalued," said Senator Charles Grassley, R-IA, the minority leader on the Senate Finance Committee. "If they choose to stick their heads in the sand, we'll have to find another way to address this problem because it's been going on for far too long."

Wen said China needs to be careful about changing crisis policies, which have included pegging the yuan at about 6.83 per dollar since July 2008 as the global financial crisis took hold.

Western countries, including the United States and Europe - and even China's Asian neighbors - insist that its currency policy has left the yuan seriously undervalued and creates an unfair advantage in trade at a time when many other economies are struggling.

The yuan rose 21% against the dollar between July 2005 and July 2008, before the government stepped in to protect exporters. The dollar and the yuan have strengthened against the euro this year, pushing up the cost of Chinese exports to the European Union, the Red Dragon's biggest market.

U.S. President Barack Obama said last week that he wanted to double U.S. exports over the next five years and challenged China to adopt a "market-oriented exchange rate" for its currency.

However, Wen said China will keep the yuan "basically stable" and maintain a moderately loose monetary policy and a proactive fiscal stance. He said it's "essential" for the timing of any policy changes to be "appropriate."

"This is a sign that there will be no one-off revaluation in coming months," Lu Ting, an economist at Bank of America Corp's (NYSE: BAC) Merrill Lynch unit in Hong Kong told Bloomberg. "China's top policy makers do have their own currency reform plans but coercion from other countries will do disservice to this cause."

Wen also warned the U.S. against efforts to boost its exports by weakening the dollar as it would hurt the value of Chinese-held assets. Treasury Department figures show China's holdings of Treasury securities dropped for a second month in December to $894.8 billion. Only Japan holds more Treasuries.

America should "take concrete steps to reassure investors" spooked by concerns surrounding a growing U.S. fiscal deficit, he said.

The U.S. currency has climbed about 7% from last year's Nov. 25 low, according to the Dollar Index, a six- currency gauge of the greenback's value.

China has waged an ongoing campaign against tariffs imposed by the United States that began in September when Obama imposed additional duties on imports of Chinese tires. Since then Beijing and Washington have traded shots over exports of tires, chickens, steel, nylon, autos, paper and salt.

China posted a $198 billion trade surplus with the rest of the world last year, with exports to the U.S. outpacing imports by more than 4 to 1. But China has also filed more complaints with the World Trade Organization's powerful trade tribunals than any other country, the New York Times reported.

Wen also said recent diplomatic tensions were caused by $6.4 billion in U.S. weapons sales to Taiwan - the self-ruled island that China considers part of its territory - and President Barack Obama's meeting with the Dalai Lama.

"These moves have violated China's territorial integrity," Wen said. "The responsibility does not lie with the Chinese side but with the United States."

U.S. officials sought to downplay the effects of Wen's tough talk. Fred Lash, a State Department spokesman, told The Wall Street Journal that despite the recent tension, U.S. officials looked forward to keeping "an open channel of communication with China...and fostering a good bilateral relationship."

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