China on Friday said it was sending an envoy to Washington to try to ease trade frictions as its currency regime comes under fire, warning that threats from U.S. legislators could stifle room for progress.

The announcement, along with conciliatory comments by China's commerce ministry, appeared aimed at cooling an increasingly rancorous dispute which has U.S. senators threatening to slap duties on Chinese products if Beijing does not allow the yuan to rise.

Channels of communication between our two sides are open. All issues of concern to either side can be discussed through these channels, He Ning, head of the commerce ministry's North American division, told a media briefing.

But China gave no indication it was ready to abandon its commitment to a stable yuan exchange rate, and market expectations of appreciation remained muted.

He and other officials at the briefing stressed that the United States remains a key market for Chinese goods, and Beijing wants to douse risks of a backlash.

Sending an official to Washington sends a signal that China wants to talk through these issues and doesn't want to escalate this conflict, said Wang Yong, a professor at Peking University who studies China-U.S. economic ties.

Fruitful discussion was possible only if Washington checked politics and emotions at the door, said He.

This will make the whole situation more complex, imposing disturbance from outside on our normal channels of communication, said He.

Political pressure is certainly building. Many in Congress are demanding tough action if China resists appreciation, the U.S. Treasury will next month issue a key currency report and contention over policy toward China could be magnified by mid-term Congressional elections in November.


China said Vice Commerce Minister Zhong Shan will visit the United States from March 24-26 for discussions focused on the Sino-U.S. trade balance and trade frictions.

I think that the Chinese official (Zhong) will lay down China's stance, but also try to get a finer understanding of the views in Washington and report them back to here, said Wang, the Peking University professor.

Zhong, the commerce official, would not be in any position to negotiate substantive decisions, said Wang.

The fact is that it will take time for China to transform its mode of economic development, including its exchange rate system, said He.

Many in the U.S. Congress want Beijing to revalue the yuan by as much as 40 percent and say they have patiently waited for China to move on its own. The lawmakers say a revaluation is needed to help correct skewed trade flows that give an unfair competitive advantage to Chinese goods.

China has held the yuan near 6.83 per dollar since the global credit crunch hit in mid-2008, but Beijing says this currency stability has benefited the global economic recovery.

A semi-annual U.S. Treasury report due on April 15 could label China a currency manipulator, adding to pressure on Beijing and threatening a deepening rift between the world's biggest and third-biggest economies.

If China is formally classified as a currency manipulator, the U.S. Treasury must quickly launch talks with Beijing, raising pressure for concessions, although U.S. law offers an escape clause to avoid that step.


Just last week, market expectations were growing that a solid recovery in Chinese exports and a build-up in inflationary pressure might prod the government to permit yuan appreciation.

Investors have this week scaled back their bets on any imminent move on the view that Beijing will find it politically unpalatable to appear to cave into U.S. pressure.

The yuan was bid just a touch above a three-week low in offshore forwards on Friday, implying expectations of 2.5 percent appreciation over the next 12 months.

The burst of rancor with the United States has grabbed headlines over the past week, but China is the world's largest exporter and the yuan's exchange rate is an issue that affects virtually all countries.

Visiting Washington, Indian Commerce and Industry Minister Anand Sharma said China's exchange rate policy created problems for Indian exporters.

In a discussion paper for a meeting of officials from the Group of 20 industrialized and emerging nations, Canada said that stalling on economic and financial reforms agreed at a G20 summit in Pittsburgh last year would bring unsustainable debt levels, higher interest rates and another crisis.

(Writing by Simon Rabinovitch; Editing by Ken Wills and Kazunori Takada)