Pacific Rim leaders will meet in Busan, South Korea to further common economic interests. Yet the issue of Asia's currency exchange rate systems is likely to divide them. China is expected to come under pressure again from the United States and other APEC trading partners to ease controls on its currency. But experts say the meetings are not likely to prompt any major developments on the issue.
In the Asia Pacific Economic Cooperation, APEC, finance meeting in September, finance ministers called for greater foreign exchange rate flexibility in emerging Asia economies.
APEC national leaders are expected to follow up on the issue at their annual meeting in Busan, South Korea. Pressure is building again on China, which the United States and other countries accuse of rigging its exchange rate system in order to keep its exports cheap.
Although China in July changed its foreign exchange system to allow the yuan to move against a basket of currencies -- instead of just pegging it to the dollar, its trading partners say the change was insufficient. Since July, the yuan has risen about 2.5 percent against the dollar. Now $1 brings 8.0 yuan. That's a small change, but a step in the direction the critics want it to go.
Many economists say Chinese officials are unlikely to make any more changes soon. That is largely because Beijing needs rapidly expanding exports to fuel economic growth and absorb millions of unemployed workers. And a steady, weak currency makes Chinese goods cheaper on world markets.
Qu Hongbin is an economist with HSBC Securities in Hong Kong.
"China still has more than 200 million rural surplus labor needed to be allocated to the industrial service sector over the next two decade," he explained. "As a result, China has no choice but to keep expanding the industrial bases and therefore the export sector. So in terms of the currency, the best exchange rate policy to facilitate this kind of structural transformation is to maintain a stable exchange rate."
Beijing repeatedly says it is gradually working toward a more flexible exchange rate in manner that does not endanger economic stability.
But this has not satisfied Beijing's critics, especially the United States, which has large trade deficits with China.
Last year, the United States bought $162 billion more worth of goods from the Chinese than it sold to China. Some U.S. lawmakers, upset at this deficit, are threatening to pass a law imposing high taxes on Chinese imports if Beijing does not let its currency trade freely.
The United States is not alone in complaining about China's export juggernaut. China faces increasingly vocal complaints from trading partners in Europe, Canada and other countries, which also are grappling with big trade deficits.
Despite concerns over trade imbalances, experts say there is little APEC members can do to force change.
For one, the 21-member grouping cannot compel any country to take action. APEC, whose main goal is trade liberalization, has no system of sanctions that can be imposed on its members.
Moreover, several other Asian countries have trade surpluses with the United States and Europe, prompting complaints that they, too, keep their currencies artificially weak. But if Beijing does not let its currency appreciate, its smaller neighbors are not likely to do so, because that would put them at a competitive disadvantage.
Many economists and experts, including China's finance minister, say exchange rates alone cannot correct the trade surplus much of Asia has with the rest of the world.
Frank Harrigan is an economist at the Asian Development Bank, a non-profit lender in Manila.
"The relationship between the value of the Asian currencies and current account balances is a complicated one," he noted. "In fact, if we look back at historical relationship, it is not clear that the depreciation of currencies would immediately be reflected in smaller surpluses, or a move toward deficits."
Some economists say that in order to limit trade imbalances, Asia needs to wean itself from relying heavily on exports to power economic growth. Instead, they say, Asian economies should boost domestic spending and investment, which have fallen in some countries in recent years. Making it easier for foreign companies to set up in Asia, easing import restrictions and deregulating capital outflows could also reduce the problem.
Mr. Qu at HSBC says Beijing is listening to its trading partners and looking for other ways to solve trade disputes.
"China has emphasized that they do not want to make the currency issue into a political issue, which means that China will continue to hold dialogue with trading partners to search for proper solutions, and the exchange rate is not necessarily the only means to do that," said Mr. Qu.
Some economic experts point out that curbing U.S. private and public spending is as much a solution as foreign exchange rate reforms, and policy coordination and compromises among the countries involved are necessary.
China's finance minister recently said that a yuan revaluation is not the solution to the global imbalance problem, suggesting that Beijing could push other countries to do their share to fix the problem. The United States' APEC partners could turn the pressure on Washington to fix its budget deficits, although some economists warn that could trigger a recession that would, in turn, hurt Asia's economic growth.
President Bush and top Chinese officials are expected to discuss the issue again during the president's official visit to Beijing following the APEC summit.