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Yuan falls after Hu-Bush summit

The yuan fell after Chinese President Hu Jintao (胡錦濤), meeting with US President George W. Bush in Washington, declined to respond to pressure to seek a stronger currency.

"It's not an inspiring outcome," said Shahab Jalinoos, head of Asian currency strategy at ABN Amro in Singapore. "Bush didn't push particularly aggressively on China's exchange rate and Hu didn't give them much in that area either."

Hu said after the meeting in Washington on Thursday that the government "will continue to make adjustments" in its exchange rate regime. Bush said he wanted "more appreciation."

The yuan's gains had been accelerating in the past six weeks on speculation China would use Hu's trip as an opportunity to loosen controls on trading the currency.

Surging exports and investment in manufacturing helped China's economy grow 10.2 percent in the first quarter from a year ago, the fastest of the world's 20 largest economies. US lawmakers argue the yuan is kept artificially weak to give exporters an advantage, contributing to the nation's US$201.6 billion deficit with China last year.

The yuan fell 0.06 percent to 8.017 per US dollar as of 3:30pm in Shanghai. The currency has risen 1.2 percent since it was revalued by 2.1 percent on July 21, halting a decade-old peg to the US dollar.

The biggest intraday rally in the yuan since the peg ended is half the maximum 0.3 percent that the People's Bank of China said it would allow the currency to rise or fall each day. It may rise to 7.8 percent by the end of this year, Jalinoos said.

"We will continue to make adjustments to the renminbi exchange-rate regime," Hu said on Thursday, sitting next to Bush in the Oval Office in Washington. "We do not pursue an excessively high trade surplus" with the US.

Gains in the yuan have stalled since the currency rose on April 10 to 8.0022, the strongest since the revaluation. The currency has weakened 0.13 percent in the 10 days through yesterday.

The US Treasury's Snow pushed Chinese central bank Governor Zhou Xiaochuan (周小川) and National Development and Reform Commission Chairman Ma Kai (馬凱) for greater currency flexibility during meetings on Thursday in Washington, a Treasury official said.

The Chinese officials told Snow their government's five-year economic plan will bring more balanced domestic growth, the Treasury official said. The official, who couldn't be identified under Treasury Department briefing rules, didn't say how either message was received and declined to take questions.

The IMF, WTO and Japanese government joined the US in seeking faster yuan gains. The appreciation should reflect China's economic strength, Japanese Chief Cabinet Secretary Shinzo Abe said yesterday in Tokyo.

"Potentially there would be some disappointment for some people," said Richard Yetsenga, a currency strategist at HSBC Holdings Plc in Hong Kong. The US visit by Hu "hasn't been a watershed in terms of generating anything new."

Meanwhile, a White House official said on Thursday that China's moves toward currency flexibility were "not nearly enough" to satisfy US concerns.

The official added, however, that the Bush administration is hopeful about some progress in the future.

"The Chinese are beginning to use their new system for having a flexible currency," said Dennis Wilder, an Asia specialist with the White House National Security Council. "It's not enough, it's not nearly enough."

His comments came after Bush met with Hu at the White House and pressed him to take steps to reduce China's huge trade surplus with the US.

Hu assured Bush he was working to make the Chinese currency more flexible but gave no specifics.

"We're disappointed with how slowly they've moved to use it. But over time we believe they have the ability to use it more," Wilder said.
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