An increasingly assertive China has a warning for the global policy makers gathering next week in Toronto: Consider our currency off-limits.
That's bad news for countries like Canada and the United States, which have been pressing China to permit a more flexible exchange rate in the hope of remedying the skewed nature of global trade.
Such imbalances - where China and others amassed a glut of savings while the United States borrowed heavily - helped set the stage for the financial crisis. But getting Americans to save more and the Chinese to buy more is turning out to be a slow and arduous process.
China is pushing back hard at any move to place its currency policy in the spotlight. It would be "inappropriate" to discuss the yuan's exchange rate at the upcoming Group of 20 summit, a spokesman for China's foreign ministry said Thursday.
One unnamed senior Chinese government official went even further, Reuters reported, saying that such a discussion could undermine the entire purpose of the meeting.
"If we allow the G20 to turn into a process of finger-pointing, then it will certainly send out a very confusing and misleading signal to the markets and to the general public," said the official, who spoke on the condition of anonymity, according to Reuters. "This will certainly lead to very serious consequences in the global economy."
China's muscular talk ahead of the summit underscores that it will be difficult for other countries to persuade Beijing to budge on the yuan, which many experts view as artificially cheap, boosting the competitiveness of Chinese exports.
"You can talk to them all you want about it not being in their interest and not playing their part in the global economy," says Michael Dooley, an economist at the University of California Santa Cruz who studies emerging markets. The fact is, he says, that China's currency policy "has been very successful" in promoting economic growth.
China has kept the yuan effectively pegged to the U.S. dollar since the summer of 2008. For three years prior to that, it had permitted a very gradual strengthening against the dollar. While there were reports earlier this spring that China was close to allowing a revaluation of its currency, those hopes have all but vanished amid the debt crisis in Europe.
For instance, currency contracts to buy the yuan 12 months from now imply that it will strengthen only about 1 per cent in that time period, down from over 3 per cent in May, says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. The uncertainty stemming from the turmoil in Europe "will give China another excuse to sit on its hands," he says.
With no change on the horizon in its currency, China would seem to be on a collision course with the U.S. Congress. Anxious about stubbornly high unemployment and eyeing November's mid-term elections, U.S. lawmakers are showing fresh appetite for bashing China's trade and currency policies.
"Years of meetings … have repeatedly failed to produce lasting and meaningful results," on getting China to float its currency, New York Senator Charles Schumer said last week, vowing to push for a vote on legislation that would allow the U.S. to penalize countries with "misaligned" exchange rates.
China is also allowing its own rhetoric to escalate. A commentary published this week by the official government news agency Xinhua said U.S. lawmakers who are pushing legislation on China's currency were a "bunch of baby-kissing politicians" trying to deflect attention from serious economic problems caused by their own incompetence.
Chinese officials argue that it's important to look beyond the simple dollar-yuan exchange rate for a fuller picture of what's happening. Since the dollar has surged against the euro in recent months, so too has the yuan - making Chinese goods more expensive in the country's largest export market.
Still, China's trade surplus is growing fast. In May, it rose about tenfold from the previous month, led by exploding exports. With China once again churning out products and the U.S. still far from being a nation of savers, some say the old patterns of global demand are reasserting themselves.
"It's a world which in a lot of ways is similar to what we worried about before the crisis," says Prof. Dooley of the University of California.