How fascinating to have been a fly on the wall at the meeting this month between Wang Qishan, the Chinese vice premier, and the US Treasury secretary Timothy Geithner. The tone of the discussions and body language of the two men would have been a thrill to watch because of just how sensitive the issue of the Chinese yuan has become. The question of whether and by how much China allows its currency to appreciate is about more than economics and trade balances. It centres on the increasing assertiveness of China and its desire not to be told what to do by anyone.
That includes the Americans, who claim an undervalued yuan means their manufacturers are facing unfair competition, leading to lost jobs. At a recent question-and-answer session for the press in Beijing, Serge Abou, the EU ambassador to China, shied away from the yuan question, even though it is as crucial for European manufacturers as for Americans. Mr Abou observed the political notion that China historically refuses to act, or to be seen to act, under pressure from outside.
And so it followed that the flurry of speculation following the meeting between Mr Wang and Mr Geithner that there would be an immediate revaluation of the yuan, which has been pegged at about 6.83 to the dollar since 2008, came to nothing. And Hu Jintao, the Chinese president, told his American counterpart Barack Obama that China would most definitely not be pushed about on the yuan. But perhaps keen to maintain a thawing of relations with the Americans, Mr Hu has indicated the Middle Kingdom is likely to act on the currency's value, albeit in the context of what he insists are China's interests.
According to Isaac Meng, an analyst at BNP Paribas in Beijing, it is clear that the Chinese government "is committed to resuming a more flexible regime" with respect to the yuan. But Mr Meng says the situation China finds itself in, under pressure to revalue the yuan, is "not ideal" since last month the country posted a large trade deficit, its first since 2005, and he predicts the country's trade surplus will be low in the second quarter.
"And China has a long-term view that they don't believe the trade imbalance is a result of the currency," he says. Many on the Chinese side have marshalled evidence they believe shows the US balance of trade with China does not fluctuate in line with changes in the relative value of the countries' currencies. Mr Meng thinks China will allow the yuan to appreciate to about 6.6 to the dollar, and will also follow a basket of currencies, rather than just the greenback.
But what effect would such a modest appreciation of the yuan have on manufacturers in China and the US? Some analysts believe it could lead to more manufacturing being transferred to even cheaper countries such as Vietnam or Indonesia. US manufacturers would not benefit, since the cost disparity between American and Chinese goods is wide. At the end of the day, any likely appreciation is not going to be on a scale that would give the Americans, some of whom have said the yuan is as much as 40 per cent undervalued, significant cause for joy.
In 2005 the yuan was at about 8.2 to the dollar, and was allowed to appreciate by about 20 per cent, but no one seems to be suggesting that another appreciation on the same scale is likely in the immediate future. While the US might succeed later this year in its aim of seeing the yuan appreciate, those manufacturers and Congressman who have been so vocal in putting the blame for their own woes at the door of the Chinese are very likely to be little better off then than they are now.