U.S. to judge China’s yuan policy as elections near

President Barack Obama's administration faces a tough call on Friday whether to label China a currency manipulator, a move many U.S. lawmakers say is overdue but one that could sour Sino-U.S. relations.
A desire to look tough on "unfair" trade practices ahead of U.S. congressional elections on November 2, in which Obama's fellow Democrats are battling to retain control of Congress, could tempt Obama to cite China for the first time in 16 years.
But concern about angering the United States' largest creditor argues for a continuation of diplomatic efforts that have resulted in a nearly 2.5% rise in the value of China's yuan currency over the past several months.
It is a fine line to walk, and many observers think Obama will opt to play it safe with Beijing and give it another pass.
China on Friday left little doubt about the rancour that would ensue if it is branded a currency manipulator.
"It is entirely wrong for the United States to make an issue of China's trade surplus and hence put pressure on the yuan exchange rate," commerce ministry spokesman Yao Jian said.
"The Chinese yuan should not be a scapegoat for United States' domestic economic problems," he said at a briefing.
Washington says Beijing could help rebalance the global economy by reducing its reliance on exports and letting the yuan rise. This would ease the pressure soaring currencies are placing on many other emerging market economies, Treasury Secretary Timothy Geithner has said.
China in turn has argued that moving too quickly with currency reforms could devastate its economy, and has blamed the United States for its loose monetary policy that has weakened the dollar and pressured developing economies.
In an article published on Friday, Chinese central bank governor Zhou Xiaochuan pledged a continuation of yuan reform, but only on Beijing's gradual terms.
"The yuan exchange rate will be basically stable at a reasonable and balanced level," he wrote in China Finance, a magazine published by the central bank.
Derek Scissors, a research fellow at the Heritage Institute in Washington, said: "The odds still are that Treasury won't cite".
However, he hedged his bet, saying many in Congress now believe "the yuan only moves when political pressure is high. That argues for finding manipulation this time."