By Rebecca Christie and Nicole Gaouette May 24 (Bloomberg) — President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. China will continue to “steadily advance” reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. U.S. Treasury Secretary Timothy F. Geithner said today that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. So far, China has resisted calls from trading partners to let the yuan strengthen after maintaining a peg of about 6.83 to the U.S. dollar for 22 months as a crisis policy. Hu is “sending a signal” that China is working on the currency issue even if the nation isn’t yet ready to announce a policy shift, Frank Lavin , a former U.S. undersecretary of commerce, said on Bloomberg Television in Hong Kong today. “They are trying to say we know this is high on your agenda.” “There’s a strong political requirement” for China to take steps to allow yuan gains “in the next few months,” said Lavin, an Asia-Pacific chairman for public relations firm Edelman. ‘Challenges Facing Europe’ Much of today’s discussion was on the nations’ efforts to “maintain strong, sustainable and balanced growth, against the backdrop of the challenges facing Europe,” a U.S. official said in a statement to reporters this evening, given on condition of anonymity. Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the currency’s exchange rate wasn’t mentioned in talks this morning between officials including central bank governors Zhou Xiaochuan and Ben S. Bernanke . China hasn’t changed its yuan policy, Zhang added at a press briefing. Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” The Shanghai Composite Index closed 3.5 percent higher, the biggest gain since October, on speculation that the government may delay economic tightening measures. Yuan Forwards Yuan forwards were little changed as of 5:24 p.m. in Hong Kong, trading near their weakest since September. The contracts slumped last week on speculation that China may defer appreciation as Europe’s woes threaten the global recovery. They now indicate that investors expect the Chinese currency to gain about 1 percent against the dollar in the next year. Li Daokui , an academic adviser to the Chinese central bank, said today that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Geithner’s View Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner, 48, said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the United States and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. China’s Growth Model Geithner, who last month delayed a report to Congress that could label China a currency manipulator, said he welcomed the government’s stance that exchange-rate changes are “important.” Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” U.S. Chamber of Commerce President Tom Donohue will today say American companies are concerned that China may be “backtracking on the progress it has made to open its economy,” according to a statement released by the organization. In a speech in Shanghai, Donohue will urge China to make “some additional movement on currency,” the statement said. — Kevin Hamlin , Peter Cook , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle. Editors: Russell Ward , Paul Panckhurst To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net
