Beijing's groans over US demands to let the yuan rise have been grand theatre, but domestic currents favouring a stronger currency are likely to prevail when Chinese leaders cool down to plot policy.
China's denunciations of US pressure have, combined with other recent tension between the two powers, fostered the view that Beijing will put stubborn resistance to foreign hectoring ahead of arguments for yuan appreciation.
The core of this view is the assumption that the Communist Party and a nationalist public would find it intolerable to appear to cave in to external pressure.
But this image of a China boxed in by pride does not stand up to scrutiny. In a country where maintaining economic strength is sacrosanct policy, even prickliness over perceived US bullying could fade way.
Government advisers and analysts say Beijing still has plenty of political space to implement currency appreciation if it decides that a stronger yuan makes economic sense.
“If we didn't adjust the exchange rate just because of US pressure, that really would be manipulation. China is still moving towards market-based reforms of its exchange rate, but is waiting for the economy to improve,” said Li Wei, head of the Americas division in the commerce ministry's research unit.
“The main thing is that we will do it according to our own judgment.”
Regardless of US threats, Beijing is likely to resume appreciation in the second half of this year when the global economy strengthens and Chinese exporters indisputably find themselves on more solid ground, Li said.
China has in effect re-pegged the yuan at about 6.83 to the dollar since mid-2008 to shield its exporters from the financial crisis.
President Obama's government is under pressure to call Beijing a “currency manipulator” in a Treasury department report due on April 15.
The possible use of that designation, not invoked since 1994, has been greeted with thunderous rebuttals from Chinese officials.
Yet for all the denunciations, Beijing may be able to live with the ugly label.
“Calling China a manipulator and passing some kind of punitive legislation are different,” said Tao Xie, an expert on Sino-US relations at Beijing Foreign Studies University. “A label does not come with any punishment.”
If China is deemed a currency manipulator, the US Treasury must quickly launch talks with Beijing, though no sanctions are required.
A newly introduced Senate bill would be tougher, demanding tariffs on Chinese products if the yuan does not rise.
Beijing can be excused for feeling that it is has seen this movie before. Lindsey Graham and Charles Schumer, the US senators behind the bill, crafted similar legislation in 2005. Their attempt fizzled out when China launched gradual appreciation in July 2005.
The yuan climbed 21 percent over the next three years.
“The Chinese government may be thinking, ‘Let's wait and see. The storm will pass',” Tao said.
Commerce Minister Chen Deming hinted at the distinction between words and actions in a speech recently.
“If the US Treasury gave an untrue reply for its own needs, we will wait and see,” he said. “If such a reply is followed by trade sanctions, we will not do nothing.”
Preparing the ground
There are signs that China is preparing the ground for a resumption of yuan appreciation.
Since the re-pegging nearly 22 months ago, the rhetoric out of Beijing has grown predictable: a stable yuan has helped the economy and the global recovery.
In the last few weeks, this has started to change.
State newspapers have run a series of reports about officials visiting export hubs to ‘stress test' how firms would cope with appreciation.
And in his most important news conference of the year, Zhou Xiaochuan, China's central bank governor, described the “special yuan policy” as a temporary stimulus policy that would end “sooner or later”.
It will probably be for President Hu Jintao and Premier Wen Jiabao to decide whether to let the yuan rise again.
The official policy description – keeping the yuan “basically stable at a reasonable and balanced level” – has been consistent since 2005, leaving them with considerable discretion to resume mild appreciation, said Victor Shih, a political scientist at Northwestern University in Illinois.
“Things change very fast. If inflation does increase, arguments can change. If exports do recover very quickly, arguments can change,” Shih said.
“They can say, ‘no, we are not doing it because some laowai (foreigner) is telling us to do it. We are doing it for these other reasons'.”
Hence the relatively mild market jitters thus far.
While the war of words with the US has made headlines, forecasts of a pick-up in both exports and inflation still dominate the outlook for the yuan.