Beijing: Rising inflation in China that is causing headaches for President Hu Jintao at home may help relieve tensions with the US over the yuan as he prepares to meet President Barack Obama in Washington this week.

Prices are climbing faster in China than in the US, making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said last week. Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported US goods such as Boeing Co aircraft and Microsoft Corp software.

Hu may seek the easing of a US ban on technology exports, while Obama is likely to focus on access to Chinese markets, lower subsidies for companies and cooperation on North Korea.

Meanwhile, the US econ-omic recovery and new Republican leaders in Congress who don't see the yuan as a priority may also help make the issue less contentious, said Michael Paulus, who heads the Asia Public Sector Group at Citigroup Inc. in Hong Kong.

Off the front burner

"That the renminbi is starting to get on a track that people feel somewhat comfortable with takes it off the front burner," former Treasury official Paulus said in an interview. "The people at the White House and the Treasury and elsewhere will not try to downplay it, but not play it up either."

Geithner, speaking in Washington on January 12, said that while the yuan was still "substantially undervalued" the "fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates."

Factoring in rising prices, the erosion of Chinese companies' advantage over US rivals was equivalent to the yuan strengthening at an annual rate of about 10 per cent, he said.

The yuan's trading range, set each morning by the People's Bank of China, is increasingly linked to political events between China and the US Shares in the exchange-traded, New York-based WisdomTree Dreyfus China Yuan Fund gained 3.1 per cent in the month leading up to a scheduled October 15 release of a Treasury report on whether China manipulates its currency, which was delayed. Shares fell 1 per cent over the next two weeks. In the first three days of last week the fund gained 0.51 per cent.

Last year Obama and Congress pushed China repeatedly to speed up yuan gains amid historically high unemployment. The jobless rate reached a 26-year peak of 10.1 per cent in October 2009, and is now at 9.4 per cent.

Obama said after meeting Hu in November that China is spending "enormous amounts of money" to keep the yuan undervalued. Democrats in the House pushed through a measure, which never saw a vote in the full Senate, making it easier for US companies to seek penalties against Chinese imports because of an undervalued currency.

Legislation

With a new Congress elected in November, the legislation must pass the House again. The Republican leaders of the panels in charge of trade and currency have other priorities.

Representative Kevin Brady, a Texas Republican who now chairs the House Ways and Means subcommittee on trade, voted against the currency measure last year. David Camp, the Michigan Republican who is chairman of the full committee, said in September that the currency measure was "not on my trade agenda."

"We're going to keep pressure on China to float their currency, but we are not going to look at China just through the viewpoint of currency," Brady said in an interview last month. "We think there are broader issues and a broader relationship with them that we have overlooked."

The yuan has appreciated more than 3 per cent since China ended a two-year peg to the dollar last June. High inflation in China — prices in November rose 5.1 per cent from a year earlier after falling for most of 2009 — continues to stealthily erode China's competitiveness as US inflation stands at about 1 per cent, Paulus said.

China's exports rose 17.9 per cent to $154.2 billion (Dh567.1 billion) from a year earlier and imports climbed 25.6 per cent to $141.1 billion, the customs bureau reported on Monday

Economists including Dariusz Kowalczyk at Credit Agricole CIB in Hong Kong, expect the yuan to gain because of the need to fight inflation and to improve the atmosphere for the Hu-Obama summit that begins on Tuesday.

Li Daokui, an adviser to China's central bank, said last month that the yuan can strengthen at a faster pace if gains are "controllable." Twelve-month non-deliverable yuan forwards rose for a fourth day yesterday to 6.4377, reflecting bets the currency will gain more than 2 per cent in the coming year.

Trade deficit

Stephen Roach, non-executive Chairman of Morgan Stanley Asia Ltd., says that while the Obama administration "gets" the effect of price gains on the dollar-yuan exchange rate, the US public and lawmakers may demand more action amid continued high unemployment and a bilateral trade deficit. New commercial deals for companies like Chicago-based Boeing and Redmond, Washington- based Microsoft may not placate Congress, he said.

US and Chinese companies will sign about 40 agreements during the Chicago leg of Hu's visit, the Chicago Council on Global Affairs said. "We don't have any details yet on which companies it will be," said Samantha Skinner, a spokeswoman.

A poll released on Wednesday by the Washington-based Pew Research Center for the People and the Press, found that 53 per cent of 1,503 Americans surveyed from January 5 to 9 said the US should get tougher on China on the trade and economic fronts.

According to the poll, 47 per cent of Americans consider China to be the world's preeminent econ-omic power, compared to 31 per cent who say that title goes to the US. The survey had a margin of error of plus or minus three percentage points.

Itinerary: Presidential summit begins this week

Chinese President Hu Jintao's state visit to the United States takes place from Tuesday to Thursday.

Many details about Hu's itinerary are closely held but here are the highlights of his trip:

Tuesday, January 18:

Hu arrives late in the day and attends a private dinner with president Barack Obama.

Wednesday, January 19:

Arrival ceremony on the south lawn.

Series of bilateral meetings at the White House; Obama and Hu will also drop by a meeting of Chinese and US business executives.

Joint press conference with Obama in the White House East Room.

Luncheon at the US State Department hosted by Vice-President Joe Biden and his wife, Jill.

Formal state dinner at the White House.

Thursday, January 20

Hu visits Capitol Hill for a meeting with Republican and Democratic congressional leaders, including heads and ranking members of key committees.

Hu departs for Chicago. The Chicago leg is likely to include a visit to a Chinese-owned auto parts plant but it is unclear whether that will be Thursday or Friday.

Friday, January 21:

Hu departs Chicago.

— Reuters