China's Wen pushes back against yuan rise calls

China's Premier Wen Jiabao pauses during the second plenary meeting of China's parliament, the National People's Congress (NPC), at the Great Hall of the People in Beijing March 8, 2010.

BEIJING (Reuters) - Chinese Premier Wen Jiabao on Sunday spurned foreign calls for the yuan to rise and showed no let up in scolding the United States over recent bilateral tensions.

Wen said calls from the United States and other big economies for China to lift the value of its yuan currency were unhelpful, even protectionist, and vowed that Beijing will steer its own way on currency reform through a risk-filled economic landscape.

"We oppose mutual accusations between countries, and even using coercion to force a country to raise its exchange rate, because that's of no help to reforming the yuan exchange rate," Wen told a two-hour news conference at the end of China's annual parliament meeting.

"We don't believe that the yuan is undervalued."

Blending his trademark folksy tone with a prickliness born of leading the world's fastest-growing major economy, Wen used the keynote event to both cast China as a benign political and economic power and as the victim of unfair international demands.

The United States, the European Union and others have long been critical of China's yuan regime. Many U.S. lawmakers complain China's currency is undervalued by as much as 40 percent, undercutting the competitiveness of U.S. products.

The risks of deepening economic tensions between Washington and Beijing now hinge on a decision by the Obama administration about whether to call China a "currency manipulator" in a semi-annual Treasury Department report due out on April 15.

Adding to the pressure, U.S. Senator Charles Schumer said on Friday that he plans to move forward legislation aimed at stopping China from "manipulating" its currency.

REBUFFS EXTERNAL PRESSURES

Without directly mentioning the United States, Wen made clear that Beijing was in no mood to surrender to any demands from Washington and might even be girding for a fight.

"I can understand some countries' desire to raise exports, but what I do not understand is depreciating one's own currency and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism," he said.

However Wen pressed Beijing's own worries about Washington policy, as he did at last year's news conference

"We are very concerned about the lack of stability in the U.S. dollar. If I said I was worried last year, I must say I am still worried this year," said the premier, in the precise, school master-like tone that has helped earn him the nickname among Chinese of "Grandpa Wen."

China is the world's biggest holder of U.S. Treasury debt, holding $894.8 billion worth.

"We cannot afford any misstep, no matter how slight, in our investments. U.S. debt is guaranteed by the U.S. government, so I hope that the United States will take concrete steps to reassure international investors," he said.

Beijing and Washington have also recently been at odds over new U.S. arms sales to Taiwan, the self-ruled island China claims as its own territory, and Obama's meeting in the White House with the Dalai Lama, the exiled Tibetan leader reviled by Beijing.

"The responsibility for the serious disruption in U.S.-China ties does not lie with the Chinese side but with the U.S.," Wen said in answer to a question about their ties.

DOMESTIC WORRIES WEIGH

Wen also stressed that domestic worries weighed on policy.

"I have said that if there is inflation, plus unfair income distribution and corruption, they will be strong enough to affect social stability and even the stability of the state's power," he said. "It will be an extremely difficult task for us to promote steady and fast economic growth, adjust our economic structure and manage inflation expectations all at the same time."

The ruling Communist Party has sought to use the Party-run parliament to promote plans to raise welfare spending for farmers and other poorer citizens, even as the government tightens its belt after a burst of feverish spending last year.

But the parliament meeting has coincided with the release of data suggesting China faces inflationary pressures that could require more intensive policy tightening.

China escaped the worst of the global slump by ramping up credit, slashing interest rates and launching a 4 trillion yuan ($585 billion) infrastructure stimulus program in late 2008.

Its economy grew 8.7 percent last year as a result, by far the fastest pace of any major country. But price increases have followed in the wake of that burst of spending and easy credit.

Consumer price inflation rose to 2.7 percent in the year to February from 1.5 percent in the year to January, spurting to a 16-month high. Rising housing prices have also stoked domestic disquiet. The government wants to limit inflation for the whole year to 3 percent.

More domestically driven growth, led by consumers more confident about their healthcare, incomes and welfare, is needed to keep the world's third-biggest economy growing at a solid pace, Wen told the parliament on its opening day on March 5.

Wen unveiled rises of 8.8 percent on social spending and 12.8 percent on rural outlays, more than the rise of 7.5 percent in the military budget, to narrow the wealth gap economists blame for dampening domestic consumption.

(Additional reporting by Chris Buckley, Aileen Wang, Simon Rabinovitch, Lucy Hornby and Emma Graham-Harrison, Yu Le, Huang Yan, Liu Zhen; Editing by Ken Wills and Kazunori Takada)