The value of the yuan remains a central topic of the U.S.-China Strategic and Economic Dialogue, which ends May 10. China is widely known to suppress the value of its exchange rate in order to benefit its export sector, which just registered an $11.4 billion surplus for April. Thus, while Beijing is gradually increasing imports and decreasing its trade surplus, this economic re-balancing is happening slowly. Meanwhile, Beijing continues to rack up large surpluses that strike foreign states as evidence of mercantilism. In the United States, the undervalued currency is viewed as a secret subsidy that boosts China's trade surpluses at the expense of American jobs. Though Beijing has allowed the yuan to rise by about 5 percent against the U.S. dollar since June 2010, Treasury Secretary Timothy Geithner has resisted Congressional pushes to punish China. The dollar's value has fallen relative to other major currencies, and thus the Chinese yuan has depreciated in relation to the yen, euro, pound sterling and franc. Beijing is unlikely to accelerate appreciation, and if it does it will be to combat domestic inflation rather than appease American demands. At bottom, however, the United States wants more than a stronger yuan. It wants China to liberalize its exchange rate and entire capital account, make the currency freely convertible, and transform the domestic economy as a result. Beijing fears such drastic change and will insist on stability, at least until after the 2012 leadership transition is complete.
