Bush says floating yuan would help balance trade

SYDNEY (Reuters) - U.S. President George W. Bush said on Wednesday China could help reduce trade imbalances by floating its currency, and a White House aide said Bush may discuss the thorny issue in a meeting with Chinese President Hu Jintao.

Critics say China's yuan is significantly undervalued, giving Chinese exporters an unfair advantage in global markets, even though China revalued the currency by 2.1 percent in July 2005 and allowed it to appreciate a further 7.3 percent since.

"We still have got a huge trade deficit with China, which then causes us to want to work with them to let their currency float. I think that would be helpful in terms of adjusting trade balances," Bush said.

Bush and Hu are scheduled to hold a bilateral meeting on Thursday afternoon at the Asia Pacific Economic Cooperation (APEC) summit in Sydney.

"It would not surprise me at all if exchange rates were discussed," said Dan Price, an expert on trade and the economy with the White House National Security Council.

U.S. imports from China totaled $121.0 billion in the first five months of the year and are on track to surpass last year's record of $287.8 billion when the bilateral trade deficit also reached a record $233 billion.

China could become the third-largest market for U.S. exports by the end of the year, the Chinese Commerce Ministry said in a recent report. In recent months, though, the quality of Chinese exports has come under a spotlight following a series of scandals and product recalls.

Bush also said Beijing needed to play a part in defining global goals on climate change. "In order for there to be an effective climate change policy, China needs to be at the table. And in order to get China at the table they have to be a part of defining the goals," Bush told a joint news conference with Australian Prime Minister John Howard.

Howard has put climate change at the top of the agenda for the Sydney summit.

More than any other country, China faces tough demands in forthcoming negotiations on how the world will cope with global warming and what will succeed the current Kyoto Protocol, which governs signatory states' greenhouse gas responsibilities.

On Monday, the Chinese Foreign Ministry announced it had established a team of elite diplomats to navigate the negotiations. Foreign Minister Yang Jiechi would head the team.

On Tuesday, the Pentagon said computer hackers gained access to an unclassified e-mail system in the office of Defense Secretary Robert Gates, but declined to comment on a report that the Chinese army was responsible.

Asked if he would raise the issue with Hu, Bush did not name China, but said: "In terms of whether or not I'll bring this up to countries from which we suspect there may have been an attack, I may."