May 10 (Bloomberg) -- China said it faces challenges from rising consumer prices and will maintain a “prudent” monetary policy, according to a statement released today following the annual Strategic and Economic Dialogue with U.S. officials.
“China will guide its monetary policy to return to normality from an anti-crisis status,” according to the statement distributed by the Chinese delegation to the talks in Washington. “It will try to meet reasonable demand for capital needed for economic growth, while focusing on removing inflationary monetary elements.”
At the same time, the world’s second-largest economy will seek to expand domestic demand and increase imports, the statement said. It also said it hopes the U.S. will end restrictions on exports of high-technology goods to China.
China is seeking to control consumer prices that rose 5.4 percent in March, the most in 32 months, without stifling the growth that’s helping to power the world economy. The country is scheduled to release April inflation numbers tomorrow.
U.S. officials, including Treasury Secretary Timothy F. Geithner, are urging China to allow faster appreciation of its currency as a way to control inflation and address lopsided global flows of goods and capital that contributed to record Chinese exports in April.
Geithner, speaking at the close of the two-day talks, said he hopes China “moves to allow the exchange rate to appreciate more rapidly and more broadly against the currencies of all its trading partners.”
Chinese Deputy Finance Minister Zhu Guangyao said that while the U.S. and China agree that the yuan should be allowed to strengthen, they differ on how quickly it should rise.
“China will continue with a reform of its exchange-rate mechanism to increase the yuan’s flexibility,” Zhu said at a news conference in Washington, speaking in Chinese. “The view from the U.S. side is that the yuan should rise continuously at a faster appreciation pace, so we have differences on the degree of appreciation.”
China today reported an April trade surplus that was more than three times larger than forecast as exports surged to a record, bolstering the U.S. case for faster yuan gains.
The surplus widened to $11.4 billion and exceeded the forecasts of all 27 economists in a Bloomberg News survey. Exports climbed 30 percent to $156 billion while import growth slowed to 22 percent, the customs bureau said. The trade surplus compared with $140 million in March and $3.2 billion in the survey for April.
China’s central bank set the yuan’s reference rate at 6.495 per dollar, a record high, for the third day before the final day of the meeting in Washington. The currency was unchanged at 6.4937 at 1:07 p.m. in Shanghai. The People’s Bank of China allowed the currency to strengthen 0.9 percent in April, the biggest monthly gain this year.
China, the world’s biggest consumer of copper, iron ore and soybeans, has seen its import bill surge over the past year as prices of commodities climbed, contributing to the nation’s first quarterly trade deficit since 2004 in the January-to-March period.
At the start of the meeting yesterday, Geithner said China has been making progress “towards a more flexible exchange rate” and on weaning its economy off a dependence on exports.
Still, Senator Sherrod Brown, a Democrat from Ohio, urged the U.S. administration to press China on the currency issue and also said Congress should pass legislation to protect American workers from an undervalued yuan. Brown and Senator Olympia Snowe, a Republican from Maine, have proposed a measure to allow additional sanctions to address currency issues.
China argues that its currency is not a key cause of global economic imbalances, highlighting the role of U.S. restrictions on Chinese purchases of high-technology products.
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