U.S. to prod China to let value of yuan rise

The deepening world economic crisis and a possible spat over currency levels hung in the air as the U.S. and China sat down Thursday to discuss the future of their economic relations.

U.S. officials say Treasury Secretary Henry M. Paulson will press Beijing at the two-day Strategic Economic Dialogue to let its yuan rise against the dollar to ease trade tensions. U.S. companies contend that China keeps the yuan undervalued, giving its exporters an unfair advantage and adding to its trade surplus.

But with China’s exporters suffering, the yuan plunged Monday in government-controlled trading -- a possible message to Washington to go easy on the issue. “The signal China sent on Monday is: We also have our own political problems and issues in a slowing economic environment,” Frank F.X. Gong, chief Asia economist for JPMorgan Securities, said in a report to clients.

State media said Thursday that a rapid rise of the Chinese currency would harm the global economy further because it would hurt Chinese exports and increase unemployment.

The twice-a-year dialogue, launched in 2006, is meant as a relationship-building exercise rather than a forum for negotiation. But Treasury Undersecretary David McCormick said this week that officials would urge China to continue allowing the yuan to rise -- a key issue for U.S. lawmakers who are pressing for punitive action if Beijing fails to act quickly on trade complaints.

Both economies are struggling, the U.S. with a recession and China with a sharp slowdown in growth. Keeping one of the world’s biggest trading relationships stable may be of global importance.

Beijing broke a direct link between its yuan and the dollar in July 2005 and let its currency rise about 20% since then.