China sees U.S. stoking Brazil and India anger over yuan

BEIJING (Reuters) - The United States has incited Brazil and India to criticize China's currency policy, but Beijing need not worry too much because it can defuse the tension through talks, a series of Chinese government advisers told Reuters.

Independent analysts warned, however, that a belief that Brazil and India are doing Washington's bidding and are not truly aggrieved could make Beijing complacent and undermine fledgling ties between the emerging powers.

Increasingly widespread calls for a stronger yuan are awkward for China, which is accustomed to facing U.S. pressure over its tightly controlled exchange rate but has long tried to cast itself as the natural ally of other developing nations.

Brazil and India are unlikely to be any more successful than the United States in persuading Beijing to permit faster appreciation, researchers in Chinese government think tanks said.

"They must realize that the root of problem is not China but the United States," said Chen Fengying, director of the World Economy Institute at the Institute of Contemporary International Relations in Beijing.

"Yes, we know India's inflation is high and Brazil is raising interest rates, but how can China's currency policy solve your problems?"

Critics accuse Beijing of giving its exporters an unfair advantage by keeping the yuan low, but the Chinese advisers said that an ultra-loose U.S. monetary policy debasing the dollar was to be blamed for rising currencies in developing nations.

CRUMBLING BRICS

The "BRIC" grouping of fast-growing emerging markets -- Brazil, Russia, India and China -- would provide Beijing with an avenue for making its case, the advisers told Reuters.

"Complaints from other BRIC countries add to the pressure over the yuan as they are key trading partners and China has to take them seriously," said Song Hong, a senior researcher in the Institute of World Economics and Politics of the Chinese Academy of Social Sciences.

"However, China is unlikely to change its ways because of the additional pressure. When the United States pressed China, China explained itself to Washington, and China can do the same with the BRIC countries," he said.

The BRICs, a term coined by Goldman Sachs in 2001 to describe the growing influence of large emerging economies, have been at the forefront in pushing for more clout in international forums for developing nations.

Despite a shared interest in increasing their stature, the foursome have struggled with gaping differences over climate and trade issues and have yet to come up with clear proposals to advance a common agenda.

The divisions have sharpened recently.

Reserve Bank of India governor Duvvuri Subbarao said this week that an artificially low yuan hurt his country.

And Brazil's newly elected President Dilma Rousseff, in part pressured by a relentless rise in the real currency, has pointed to an undervalued yuan as a threat, flooding her country with cheap Chinese imports and eroding Brazil's export competitiveness.

"No matter if the pressure is from developed countries or emerging markets, the Chinese government is very unlikely to yield too much over the exchange rate issue," said He Maochun, an international studies professor at Tsinghua University.

BUMP ON THE ROAD

For China, the smoking gun was U.S. Treasury Secretary Timothy Geithner's visit to Brazil this week, where he urged Roussef to do more to lobby Beijing to let its currency rise.

"The United States incites emerging countries to besiege the yuan," read the top headline in the Chinese commerce ministry's official newspaper on Friday.

"Although the situation facing China's exchange rate is becoming more difficult, it will still be controllable," it said.

Zhou Zhiwei, a Latin American specialist in the Chinese Academy of Social Sciences, described it as a bump in the road.

"Ties between BRIC countries today are stronger than they were 10 years ago, so it is normal to have friction and conflicts. That won't affect cooperation," he said.

The BRICs have held annual summits since 2009. With China scheduled to play host this year, the government advisers said Beijing must remind the others of how its appetite for raw materials and investment flows had propped up their growth.

But Gregory Chin, director of global development research at CIGI, a think tank in Canada, said Beijing would need to offer something more concrete to mend fences, particularly with Brazil, which it had been trying to cultivate as a closer partner.

Short of speeding up yuan appreciation, China could try to make peace by offering Brazil more trade financing and preferential access to the Chinese market, he said.

"China is going to have look more seriously at Brazilian interests. It is not something that can be papered over so easily," Chin said.

The yuan weakened against the dollar on Friday in an apparent expression of Beijing's displeasure over renewed U.S. pressure for faster appreciation.

It has risen about 3.5 percent since China unshackled it from its peg to the dollar last June, but it has been kept little changed so far this year.

(Editing by Simon Rabinovitch)