China moved yesterday to head off a currency row with President Obama by hinting that it would allow the renminbi to rise after keeping the exchange rate on ice for 16 months.

Mr Obama has said that he would raise the issue of the Chinese currency, widely seen as undervalued, when he visits Beijing next week. The cheapness of the renminbi is one reason that Washington has slapped duties recently on steel, tyres and other Chinese imports.

The People’s Bank of China, the central bank, did not say explicitly that it would allow the renminbi to start to climb again — but conspicuously it omitted to repeat its well-worn language on the subject, which in Beijing’s opaque system can be interpreted as equivalent to a policy change.

In its third-quarter monetary policy report, the central bank departed from its mantra of keeping the yuan “basically stable at a reasonable and balanced level”, which it has repeated at every opportunity for more than a year. Instead, it hinted at a shift from an effective dollar peg that has been in place since July 2008, pinning the currency at about 6.83 yuan to the dollar.

Ding Zhijie, a professor at the University of International Business and Economics in Beijing, who also provides advice to government, said: “The exchange-rate policy in the last year can be viewed as an extraordinary policy for an extraordinary time. Now, it is time to bring closure to it.”

He said that the central bank would also continue to reform the yuan to make the exchange rate more flexible. “In the short term, given consideration to international pressures and economic fundamentals, it means the yuan will get stronger.”

China halted a three-year rise in the yuan, during which time it rose 20 per cent against the dollar, to help its exporters to weather the global economic storm. Now that the economy is doing better, as a raft of figures showed yesterday, China appears to be recognising that a stronger currency would suit its own economic purposes and stave off international pressure.

Moreover, a rise in the renminbi would help China to wean its economy off exports and encourage the consumption growth that policymakers in Beijing and around the world consider crucial to achieving more balanced, sustainable growth.

Yet not everybody was convinced that yesterday’s statement foreshadowed an imminent policy shift. Peng Wensheng, of Barclays Capital, said: “I think it probably reflects increasing capital inflow pressure on the currency. But I think it is unlikely they will make any move in the near term. The language is somewhat different from before, that’s true.” He was unsure that a change was around the corner, even with Mr Obama due in town. “Usually, when they say something and when they do something — the timing is uncertain, I should say.”

Washington argues that the yuan is undervalued in relation to Beijing’s growing economic clout. Yesterday China reported a surprisingly large trade surplus for October of $24 billion (£14.4 billion) and a leap in industrial production to a 19-month high. Growth in investment and lending dipped in October as the impact of the initial burst from a bank-financed four trillion yuan (£400 billion) econ-omic stimulus package, announced a year ago, tapered off. Nevertheless, the figures showed that China’s economic momentum remained strong overall.

Jun Ma, chief China economist at Deutsche Bank in Hong Kong, said: “Looking at trends, consumption is accelerating, while investment is decelerating. The change is pretty modest, but it is an interesting trend to see and is positive in the sense of really being what the Government wants.”

Deflation eased in October, but not by as much as expected. Consumer prices fell 0.5 per cent in the year to October, with producer prices down 5.8 per cent. A sharp fall in new lending, to 253 billion yuan in October from 516.7 billion yuan in September, was partly a seasonal phenomenon but may have reflected regulatory pressure to curb loan growth.

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