BEIJING - China dismissed U.S. threats to get tough on trade and exchange rates to ensure American goods are not disadvantaged, saying on Thursday that its currency was at a reasonable level.

U.S. President Barack Obama said his administration was pushing China to enforce trade rules and further open its markets, adding to a range of issues weighing on relations between the world's biggest and third-biggest economies.

A Chinese Foreign Ministry spokesman responded by saying the yuan was already at a reasonable level, and that China did not deliberately pursue a trade surplus with the United States.

At the moment, looking at international balance of payments and forex market supply and demand, the level of the yuan is close to reasonable and balanced, Ma Zhaoxu told a regular news briefing, repeating China's standard line on its currency.

Accusations and pressure do not help to solve the problem, he added.

The Foreign Ministry has no say in China's currency policy, which is driven mainly by domestic considerations, such as the need to maintain rapid economic growth and provide jobs.

U.S. manufacturers have complained for years that China deliberately holds down the yuan, giving local exporters an unfair price advantage. China says exchange rate policy is an internal matter.

Analysts cautioned against reading too much into Obama's comments, saying his words were as much aimed at appealing to a domestic audience as trying to put pressure on Beijing.

Even if China wants to adjust its exchange rate, it is nearly impossible for Beijing to meet the demands of the U.S. -- this is China's own business, Li Jian, a researcher with a think-tank under China's Ministry of Commerce, told Reuters.
Markets, too, were not counting on a brisk rise.

Previous tough comments on the yuan from the U.S. administration have typically led nowhere, said a U.S. bank dealer in Shanghai. The market is not sure the latest comments by Obama will really lead to a tougher U.S. stance on the yuan.

Offshore one-year dollar/yuan non-deliverable forwards (NDFs), a rough gauge of market sentiment, on Thursday implied a 2.8 percent rise in the yuan over the next 12 months, slightly less than on Wednesday. The yuan's spot exchange rate, which is tightly controlled by the central bank, was nearly flat.

Obama told a meeting with Senate Democrats on Wednesday that Washington was trying to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways.

Obama said he would not take a protectionist stance towards China, arguing that to close ourselves off from that market would be a mistake.

YUAN SEEN AS UNDERVALUED

The Peterson Institute for International Economics in Washington has estimated that the yuan is undervalued by about 30 percent against all world currencies and about 40 percent against the dollar.

Underscoring U.S. concerns, Republican Senator Charles Grassley urged Obama to formally designate China as a currency manipulator to prod Beijing into action.

Obama has twice declined to label China as a currency manipulator, but faces a third decision on that issue in April.
Finance ministers and central bank governors of the Group of Seven rich nations will discuss China's currency this weekend in Canada, a U.S. Treasury official said.

Zuo Chuanchang, a researcher with the Academy of Macroeconomic Research, a think-tank under the National Development and Reform Commission, said a row over the yuan would not lead to anything like a trade war.

It's very normal to see some disputes between China and the United States, but this doesn't mean there will be a bust-up. he said. It's a political show, and it does really mean too much.

REVILED AS SEPARATIST

China on Wednesday also warned Obama against meeting the Dalai Lama, reviled by Beijing as a separatist for seeking self-rule for Tibet. The meeting may happen as early as this month.

Beijing was already upset with Washington over a $6.4 billion (4 billion pounds) U.S. weapons package for Taiwan, the self-ruled island that Beijing deems a breakaway province.

China's foreign ministry spokesman said on Thursday the government's decision to impose unspecified sanctions on U.S. firms selling weapons to Taiwan was an appropriate measure, but declined to say what the exact legal basis would be.

China has postponed a second round of free trade talks with Taiwan until after this month's Lunar New Year holiday, though the Taiwanese side is playing down any political reason for the delay.

The latest flare-up in Sino-U.S. ties comes against a backdrop of disagreements over Internet freedoms in China after search engine Google Inc threatened to pull out over censorship and hacking attacks.
(Additional reporting by Chris Buckley and Zhou Xin in Beijing, Ralph Jennings in Taipei and Doug Palmer in Washington; Editing by David Fox)

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