China accuses Washington of 'politicising' exchange rate row

The increasingly tetchy spat between China and the United States over the value of the yuan, and its de facto peg to the dollar, worsened yesterday when a prominent central banker in Beijing accused the US of "politicising" the debate.

Barack Obama's administration has long argued that China deliberately keeps the yuan at artificially low levels, making US exports to China more expensive, and goods made in China cheaper for American consumers. On Thursday, the US President called on China to adopt a "market orientated" exchange rate, and allow the yuan to appreciate.

"For too long, America served as the consumer engine for the entire world," said Mr Obama. "As I've said before, China moving to a more market-oriented exchange rate would make an essential contribution to that global rebalancing effort."

Su Ning, the deputy governor of the People's Bank of China, hit back yesterday, saying that Washington was responsible for curing its economic problems. "We don't agree with politicising the yuan exchange rate issue," he said. "We also don't agree with a country taking its own problems and having another country solve them."

China's belligerence belies divisions over the yuan, especially as inflation rises. Official figures last month showed consumer prices jumped to 2.7 per cent in the 12 months to the end of February, compared to 1.5 per cent in the year to January. Beijing has twice increased reserve requirements already this year, with Mr Su keen to stress that inflation is not getting out of control.

"We had expected that February's CPI would be higher than January," he said last week. "We are still observing to see whether the price trend is upward or downward, but we hope prices can move down a little bit." He added that inflation was likely to peak in the summer.

The US is likely to further stoke the row on 15 April when the Treasury Department publishes its semi-annual economic report, when it is likely to label China a "currency manipulator". The move would lay the groundwork for punitive actions against Beijing.