The Chinese Yuan’s value is declining rapidly against the American dollar, breaking months of the currency hovering in a very small range. The decline is causing some problems with long standing issues between the United States and China. The decline could not have come at a worse time as economic talks between the two nations get set to get under way in Beijing this week. According to U.S. Treasury Secretary Henry Paulson, the rising of the Yuan against the dollar would help ease any trade tensions currently between the United States and China, but analysts in Chine disagree. “Pushing for a rising Yuan now will be a lose-lose move for both China and the U.S.,” says Zhou Shijian, a researcher at Beijing’s prestigious Tsinghua University. Shijian continued by commenting that the high-level talks this week in Beijing would be better off focusing on cooperation in energy and the environment.

The China Daily, a state-run newspaper, ran a front-page article with the headline ‘US Urged Not To Harp On Currency Issues At Talks’. The article that accompanied the headline was citing analysts who argued that devaluing the Yuan might be a good thing. It would make goods that are produced in China cheaper and would help exporters get through the global recession better. In Shanghai late Wednesday, December 3, 2008, the Yuan was at 6.8783 after closing the previous Friday at 6.8254 and jumping to 6.88 on Monday. It had been hovering in and around 6.8300 over the last few months after an advance against the dollar earlier in 2008.

The Yuan has been considered undervalued by American manufacturers for years and it has given Chinese companies an unfair advantage over the United States when it comes to contributing to the record trade gap between them. Already President-elect Obama is stating that he intends to pressure the Chinese authorities to end the manipulation of the country’s exchange-rate system. China purposefully keeps the Yuan trading in a narrow corridor against the dollar, citing the need ‘to keep its currency stable while gradually loosening controls’.

Boosting the export business is not what Beijing’s policies are currently focusing on. Instead, the government is only interested in stimulating their own flagging economy and meeting their domestic demand. This may need to change, however, as thousands of factory jobs are hanging in the balance if the export business and demand for Chinese-made products do not increase very soon.

Prior to the Yuan’s decline, it had risen in value by over 20% against the dollar which cooled the issue. With the dollar rebounding against the euro and other major currencies this week, though, the pressure has been put back on the exporters. Cited Pei Changhong, the director for the government affiliated Institute of Finance and Trade Economics at a news conference in Beijing, “If the dollar continues to rise against the euro, we will have to further adjust the renminbi.” Changhong believes that the adjustments could be considered ‘reasonable and necessary’.