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China said on Wednesday it would not waver in sticking to a stable exchange rate and was being made a "scapegoat" after the U.S. Congress threatened to seek duties on Chinese goods unless it revalues its yuan.
The heat in the long-running dispute over China's exchange rate regime is rising quickly, with a bipartisan bill introduced on Tuesday in the U.S. Senate that aims to press Beijing to let its yuan currency rise.
The Managing Director of the International Monetary Fund, Dominique Strauss-Kahn, added to the pressure on Beijing, saying that the yuan is undervalued.
Focusing on the yuan will not help to solve problems in the Sino-U.S. bilateral trade relationship, a Chinese Commerce Ministry official told Reuters.
"We oppose the over-emphasis on the yuan's exchange rate," the official said, when asked about the bill. "The yuan's exchange rate is not a magic potion for solving global economic imbalances."
In Geneva, a senior China diplomat said the U.S. lawmakers were unfairly blaming Beijing for their own woes.
"They should not blame the problems they have by finding a scapegoat in China," He Yafei, China's new ambassador to the United Nations in Geneva, told a briefing.
The apparent hardening of positions drove the yuan to a three-week low against the dollar in the offshore forwards market, implying just 2.4 per cent of appreciation over the next 12 months.
Ding Zhijie, a professor at the University of International Business and Economics in Beijing, said U.S. pressure on the exchange rate was "totally counter-productive".
"With such heavy pressure from the United States, any move would look like giving in to foreign pressure -- for both the Chinese government and the Chinese public, it would be unacceptable," said Mr. Ding, who provides advice to the government.
China's official Xinhua news agency said Washington was making Beijing unfairly carry the blame for U.S. economic woes ahead of Congressional elections.
"With the U.S. mid-term elections looming, electoral politics have again become the priority of the Obama administration," said the commentary.
Focusing on China's yuan currency can create "a clear target, offering an explanation to the unemployed of why they lost their jobs," it said.
The World Bank weighed into the debate, recommending a stronger exchange rate and a tighter monetary policy to restrain inflation expectations and asset bubbles in China.
The case for greater exchange rate flexibility had, on balance, increased over the last year, Ardo Hansson, the bank's lead economist in Beijing, told a news conference.
"If there is a concern about inflation, if there is a concern about sensitive capital inflows, this is part of the arsenal for dealing with these policy issues," he said.
IMF chief Mr. Strauss-Kahn said a stronger focus by China on "domestic-led growth" would help the yuan appreciate.
"Some currencies in Asia are undervalued, especially the renminbi," he told a committee of the European Parliament in Brussels. The renminbi is another name for China's yuan.
Beijing's stance on the yuan had been consistent and was unchanged, the Chinese official in Beijing said.
He cited Premier Wen Jiabao and Commerce Minister Chen Deming, who have said a stable yuan has contributed to both the Chinese and the global economic recovery.
"We have repeated ourselves multiple times. And we cannot be any clearer," the official said.
China has in effect pegged the yuan near 6.83 to the dollar since mid-2008 to cushion its exporters from the global crisis.
Rising inflation and recovering exports had fuelled market expectations that Beijing was on the cusp of resuming the gradual path of appreciation followed for three years starting in mid-2005.
Mr. Wen on Sunday recommitted China to pushing ahead with reform of the yuan's exchange rate mechanism, leaving the door open to reintroducing exchange rate flexibility if it suits Beijing.
But the premier also said that the yuan was not undervalued and said calls for appreciation were tantamount to protectionism.
The U.S. trade gap with China narrowed to $226.8-billion in 2009 from a record $268.0-billion in 2008.
But with the administration of President Barack Obama keen to expand exports and jobs, the deficit remains a point of friction between the two powers, which have also been at odds over human rights, Tibet and U.S. arms sales to Taiwan.
The U.S. Senate bill, a rare show of bipartisan accord, adds to pressure on Obama, whose administration must decide whether to label China as a currency manipulator in a semi-annual Treasury Department report due on April 15.
Many U.S. lawmakers, with strong backing from economists, believe the yuan is undervalued by at least 25 per cent, giving Chinese companies an unfair edge in trade - one seen as more critical now that the U.S. economy is struggling to recover from the worst downturn since the 1930s.