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China-US talks: China vows more currency reform

China has pledged to continue reforms to its exchange rate policies at the beginning of high level trade talks with the US.

Speaking at the opening of the talks, President Hu Jintao said he would seek "gradual progress" on reforming the exchange rate of the Chinese yuan.

The US argues China's currency policy unfairly favours its exporters.

North Korea will also be discussed, following its apparent attack on a South Korean warship.

Although not referring to North Korea directly, President Hu stressed that cooperation was needed to deal with "international hot spots".

China is North Korea's closest ally, and has so far refrained from openly criticising its actions.

Yuan 'undervalued'

Meanwhile the currency is top of the economic agenda.

The US argues that the yuan is deliberately undervalued, giving Chinese exporters an unfair advantage in global markets.

"China will continue to steadily advance the reform of the formation of the... exchange rate mechanism under the principle of independent decision-making, controllability and gradual progress," President Hu said.

His comments were welcomed by US Treasury Secretary Timothy Geithner, who is leading the US delegation to China alongside Secretary of State Hillary Clinton.

"We welcome the fact that China's leaders have recognised that reform of the exchange rate is an important part of their broader reform agenda," Mr Geithner said.

He added that allowing the exchange rate to better reflect market forces would also give the Chinese private sector more incentive to move into producing higher-value goods.

China pegged the value of the yuan to the US dollar in 2008 in order to keep its exporters competitive amid falling demand due in the global recession.

Some analysts argue that the yuan is currently undervalued by as much as 40%.

Image caption Chinese exports have benefitted from a weak currency

The BBC's Michael Bristow in Beijing says the currency is one of a number of economic disagreements to iron out between the two economic giants.

While the US has long complained about the trade deficit it has with China, he says China wants the US to lift export controls it has imposed on Beijing.

President Hu gave no timetable for the exchange rate reform.

But investors appeared to react positively to his comments, with the benchmark Shanghai Composite Index up 3.5% - its biggest daily gain in seven months.

Markets were also buoyed by speculation that he government would put off measures designed to slow China's economic growth.

One Chinese newspaper reported a government official as saying that a planned new property tax would be deferred.

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