US and China clash on currencies

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The weakness of the US dollar is a more serious problem than the weakness of the Chinese yuan, according to the Chinese vice-minister of commerce.

Chen Deming said at the China-US economic summit his focus was currently on the depreciation of the dollar.

But US Treasury Secretary Henry Paulson said China needed a stronger currency to help fend off inflation.

At the same time, the yuan hit 7.365 to the dollar, its strongest since it was unpegged from the dollar in July 2005.

"In my capacity of vice-minister of commerce, [the Chinese currency] is not the key issue. Currently my focus is more on the depreciation of the US dollar and its possible impact and repercussions for the world economy," Mr Chen said.

"I sincerely wish to see a scenario where the US economy is getting stronger and the US dollar is getting stronger," he added.

He added that "excessively fast depreciation" of the Chinese currency would not be in anyone's interests.

'Possible overheating'

But Mr Paulson said there would be advantages to a stronger yuan.

"China's leaders have voiced concerns about China's macroeconomic stability, in particular mounting inflation, growing asset bubbles and possible overheating."

"A more flexible exchange rate policy is especially important to China now, given these risks," he argued.

It is the latest disagreement in what has been a prickly summit so far, with the US delegation putting product safety high on the agenda.

Undermine business links

There are also a number of bills going through the US Congress trying to force China to speed up the appreciation of the yuan.

Chinese vice-premier Wu Yi warned that such legislation would undermine business links.

"Obviously, to resort to trade protectionism and blame another country for the structural problems in the US economy is the wrong approach, which would only harm the interest of the US itself," she said.

Having a weak currency helps a country's exporters to compete, because it makes their products cheaper overseas.