BEIJING: Chinese reforms to unshackle the yuan ahead of President Hu Jintao's US visit are part of the country's own long-term strategy, analysts say, as the currency assumes a higher global profile.
When Hu arrives in Washington this week, President Barack Obama and lawmakers will likely express their frustration at China's widening trade deficit with the US and its stubborn refusal to revalue the yuan more quickly.
IHS Global Insight analyst Alistair Thornton said a recent appreciation of the currency was no accident ahead of the visit, saying China wanted "to suck some of the oxygen out of inevitable US claims that the yuan is undervalued".
But he also stressed: "The steps towards renminbi (yuan) internationalisation and capital account liberalisation have been long thought-out and have taken place gradually over the past couple of years.
"The goals of liberalisation -- primarily, the promotion of the yuan as a viable global currency -- are much loftier than any attempt to smooth tensions for an upcoming trip."
China's tight management of the yuan's value grossly undervalues the currency by as much as 40 percent and gives Chinese exporters an unfair trade advantage, critics argue.
But with its sights set on the yuan eventually rivalling the dollar as a global currency, Beijing has introduced a range of policy changes aimed at making the yuan easier to convert for investment and to use internationally.
In response to questions from the Wall Street Journal and Washington Post, Hu described the world's dollar-led currency system as a "product of the past" but admitted that internationalising the yuan "will be a fairly long process".
Chinese firms can now use the yuan to fund investments overseas in a trial announced last week, while the central bank has expanded a programme to allow nearly 70,000 domestic exporters to use the yuan to settle cross-border deals.
Authorities have also opened the currency to trading in Hong Kong and the United States, and invited foreign institutions to participate in the mainland's interbank bond market.
"These moves are part of a broad strategy to encourage the international use of renminbi rather than being narrowly linked to Hu's visit," said Mark Williams, an analyst at London-based research firm Capital Economics.
Another trial to allow residents in the wealthy eastern city of Wenzhou to invest $200 million a year overseas is "an early sign of progress for the renminbi's convertibility on capital accounts," HSBC economist Qu Hongbin said.
Xu Mingqi, a senior official at the Shanghai Academy of Social Sciences, a government think tank, said the internationalisation of the yuan "has been pushed forward quickly".
But the moves are unlikely to win applause from US lawmakers.
Three Democratic senators are scheduled on Monday to unveil new legislation "to vigorously address currency misalignments that unfairly and negatively impact US trade," to coincide with Hu's visit.
Beijing, under intense pressure from US and European lawmakers over its currency, pledged last June to let the yuan trade more freely against the dollar. Since that time, it has gained about 3.6 percent against the dollar.
In the past month the pace of appreciation has accelerated, with the currency gaining 1.1 percent as the United States pressed Beijing for action.
US Treasury Secretary Timothy Geithner said Friday the real appreciation of the yuan was more than 10 percent a year due to inflation.
But with America's politically sensitive trade deficit with China widening in November by 0.5 percent to $25.6 billion, claims that the currency is too cheap will persist.
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