By Alan Wheatley and Simon Rabinovitch
BEIJING, Sept 21 (Reuters) - China's yuan has risen 1.35 percent in the past nine trading days, quickening its rate of climb against a backdrop of growing U.S. criticism of China's exchange rate policy.
The People's Bank of China, which tightly manages the currency, let the yuan rise on Tuesday as high as 6.6987 per dollar -- above 6.70 for the first time since Beijing unshackled the currency from a decade-old peg to the dollar in 2005.
Following are the answers to some questions raised by the recent rise in the yuan, also called the renminbi.
WHY IS CHINA LETTING THE YUAN RISE MORE QUICKLY?
-- The best guess -- and when it comes to policy moves in China, it can be only a guess -- is that Beijing is responding to both economic fundamentals and political considerations.
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-- In a series of five articles in July setting out the PBOC's thinking about the yuan, deputy central bank governor Hu Xiaolian emphasised the importance of the trade surplus as a determinant of the exchange rate. The surplus has averaged $22 billion a month since May, strengthening the hand of the PBOC and other advocates of faster appreciation in their internal debates with opponents led by the commerce ministry.
SURELY EXTERNAL POLITICS ARE A DECISIVE INFLUENCE?
-- Beijing insists that the yuan is a sovereign issue that it alone will decide.
"But in reality it has been making some concessions. It takes very seriously the pressure from the United States over the renminbi exchange rate," said Sun Zhe, a professor at Tsinghua University in Beijing who specialises in China-U.S. relations.
Sun said Congress was unlikely to pass legislation punishing China for holding down the yuan before a visit by President Hu Jintao, which diplomats say is pencilled in for January.
But U.S. pressure could nonetheless force Chinese policymakers to think more seriously about whether a stronger yuan was in the country's self-interest, the professor said.
Xu Biao, an economist with China Merchants Bank in Shenzhen, said the yuan might rise more strongly than expected in light of criticism on Monday from President Barack Obama.
"The fresh comments from Obama are likely to put unprecedented pressure on the yuan to rise as Japan and Europe may follow Washington," Xu said.
-- Sun said it was important to bear in mind that China is also feeling the heat from developing economies such as Brazil and India. "This pressure is coming from many countries and China has to respond before the G20 summit," he said.
The next G20 summit is in Seoul on Nov. 11-12. It was no coincidence that China announced an end to the yuan's 23-month-old de facto peg to the dollar on June 19, just a week before the previous G20 summit in Toronto, where it earned plaudits for its move.
IS THIS TIME DIFFERENT?
-- The yuan's appreciation versus the dollar has been unquestionably fast over the past 9 days, prompting traders to describe it as a mini-revaluation. It is the longest string of gains since a landmark revaluation in July 2005, when the yuan's 11-year formal peg to the dollar was broken.
-- But it is not entirely without precedent. China let the yuan rise at about the same pace in early 2008, when it was trying to tame soaring inflation.
-- China could push the yuan up to 6.6 against the dollar in coming weeks, traders say, which would mark a nearly 3 percent rise since early September, reflecting the intensity of U.S. pressure. See
-- The risk for China is that it will invite unwanted hot-money inflows if it makes a habit of allowing the yuan to appreciate ahead of important political dates.
A key question, then, is whether the PBOC makes good on its promise to introduce more volatility into the exchange rate so that speculators do not view the yuan as a one-way bet. It would not be surprising to see the currency fall back at least somewhat against the dollar after this burst of appreciation.
HOW MUCH HAS THE YUAN ACTUALLY GAINED?
-- When the PBOC said three months ago that it would increase exchange rate flexibility, many observers believed that it would finally fulfill its pledge to manage the yuan against a basket of currencies.
-- On that count, the yuan's gains over the past two weeks seem far less impressive. In July and August, while inching up against the dollar, the yuan actually fell 2.8 percent against a trade-weighted basket of currencies, according to calculations by the Bank for International Settlements.
-- The yuan's performance against the euro has been even more dismal. The Chinese currency is down 3.6 percent against the euro since its June de-pegging. Even during the yuan's mini-revaluation against the dollar, it has continued to fall versus the euro, because the euro itself has been even stronger against the U.S. currency. For related story, see
-- However Beijing manages the yuan, one thing is certain: it will not appreciate against the dollar for at least eight of the next 12 trading days. Chinese markets are closed for Mid-Autumn Festival and National Day holidays, giving the yuan -- and policymakers -- a breather.
WHAT ELSE IS CHINA DOING?
-- Politically, the yuan's nominal exchange rate is an easy target for critics to latch on to.
Economically, what determines competitiveness is the real, or inflation-adjusted, effective exchange rate against a basket of currencies of a country's trading partners.
The yuan's real effective exchange rate has risen 19 percent since 2005; its nominal effective exchange rate is up 14 percent over the same period.
China is gently engineering a degree of real appreciation by increasing the cost of manufacturing in China.
After a pause during the global financial crisis, wages are again rising at an annual pace of about 15 percent to 20 percent. Rebates on exports of dozens of commodities have been scrapped.. And on-grid power tariffs are expected to rise next month (Additional reporting by Chris Buckley and Zhou Xin; Editing by Ken Wills)