Economic Outlook: Hints of change

China's central bank Wednesday hinted a policy change on exchange rates was possible as pressure builds for allowing the renminbi to appreciate.

In the week before U.S. President Barack Obama embarks on a tour of Asian capitals, the Central Bank of China said its policy would be connected to "capital flows and major currency movements."

The current dynamic defined by "capital flows" is a large increase of capital headed to China. The "major currency movements" refers to the falling U.S. dollar, which defines much of the world's valuations, The Financial Times reported Thursday.

In effect, the renminbi -- also known as the yuan -- was tied to the dollar in the middle of 2008, while the Great Recession was in full swing. One fallout to the global downturn is international trade, which has plummeted since December 2007, which prompted China's Commerce Minister Chen Deming's recent remark that the currency rate should "create stable expectations," for businesses.

From that remark analysts conclude China's top level officials are not in agreement on a policy shift, the Times said.

What is hard to deny is that pressure is on. The International Monetary Fund joined a growing chorus of grumbling from within the international business community. The IMF said last week China's currency was "significantly undervalued."

Europe and the United States are also applying pressure on the Chinese. President Obama has called for a new balance of economic activity away from a manufacturing base in emerging countries with a consumption-oriented customer base in developed nations.

European leaders are also concerned. Luxembourg Prime Minister Jean-Claude Juncker, European Central Bank President Jean-Claude Trichet and European finance commissioner Joaquin Almunia are scheduled to visit China this month. The mission is to persuade China to allow the renminbi to appreciate.

The back story to this push runs in two directions. On one front, China's economy has recovered faster than most with the export index rising from 53.3 in September to 54.5 in October using an index that defines the break-even point at 50. China's gross domestic product, contrary to negative numbers posted in hard-hit developed countries during the recession, rose 7.9 percent in the second quarter and 8.9 in the third.

On the other hand, trade disputes have become more frequent as the Group of 20's call for the international community to shun protectionism has not held water tight.

Since January 2008, the EU has initiated 11 new anti-dumping investigations involving Chinese goods. The United States recently imposed anti-dumping duties on up to 99 percent on Chinese-made oil well pipe.

"China resolutely opposes the abuse of protectionist measures and will take measures to protect the interests of our domestic industry," the Ministry of Commerce said, CNBC reported.

Does that devalue the central bank's statement?

In essence, the bank "hinted at the growing pressures for appreciation but I would temper that with the commerce minister's comments about the need for currency stability," Ben Simpfendorfer, an economist at RBS told the Financial Times.

In market movement Thursday, the Nikkei 225 in Japan dropped 0.68 percent, while the Shanghai composite index dropped 0.07 percent. The Hang Seng index in Hong Kong fell 1.01 percent, while the Sensex in India fell 0.91 percent.

In Australia, the S&P/ASX 200 dropped 0.19 percent.

In midday trading in Europe, the FTSE 100 in Britain rose 0.06 percent, while the DAX 30 in Germany dropped 0.03 percent. The CAC 40 in France rose 0.07 percent. The DJ Stoxx 50 dropped 0.09 percent.