It is the nearly fixed rate of exchange between China's currency, the renminbi, and the United States dollar. Members of Congress say it is proof that Beijing manipulates its currency to keep its exports cheap and want the government to label China a "currency manipulator," which would allow Washington to retaliate against China economically. But the announcement by Chinese authorities on April 1 that President Hu Jintao will be visiting Washington in two weeks is being seen as the beginning of a possible easing of the friction over the renminbi.
If Beijing bowed to American demands and let its currency appreciate by, say, 10 percent, the resulting squeeze on exports would shave about 0.86 percentage point off China's annual growth rate, according to a paper by Dani Rodrik, a professor of international political economy at the Harvard Kennedy School of Government. A 25 percent increase in the value of the renminbi would trim Chinese growth by 2.15 percentage points.
China is running a current-account surplus equal to about 10.5 percent of its annual economic output. But the Peterson Institute scholars estimate that gap should ideally be 4.2 percent. Based on that assumption, they estimate that the renminbi is about 20 percent undervalued against all currencies, and 40 percent against the dollar. (Source: Vikas Bajaj. New York Times, Apr 1, 2010).