Following years of US pressure the Chinese government is expected to allow its currency to strengthen against the dollar. By making Chinese exports more expensive, that has the potential to alter the face of world trade.

For decades the flow of cheap goods from China to the United States has

been an engine for global economic growth, with cheap yuan-priced goods helping Chinese exporters to undercut domestic US producers.

But since Treasury Secretary Timothy Geithner returned from China this week, rumours have swirled that the yuan will be allowed to rise around

three per cent against the greenback.

China had allowed the yuan to appreciate in a narrow band against the dollar until the global financial crisis in 2008, when it informally pegged it to around 6.8 yuan to the dollar.

According to analysts at Barclays Capital any change in that policy will be gradual. They say a

return to a wider trading band rather than a quick revaluation is Beijing’s most likely move.

“Our baseline on the form of the move is still an announcement of a widening of the trading band with no initial, one-off revaluation, followed by a gradual pace of appreciation at (an) annual rate of about five per cent,” they said in a recent report.

Peter Morici, a former chief economist at the US International Trade Commission, is among those who argue that changing the rate by three per cent, to 6.6 yuan against the dollar, would do little to curb China’s unfair trading edge.

A three per cent shift is “wholly inadequate” and “would do little to resolve the US-China trade imbalance,” he said. “China’s currency policies reduce US growth by one percentage point a year,” he said, adding that Beijing’s policies likely cost the US economy one trillion dollars in the past decade. “A three per cent revaluation of its currency will do little to change those numbers,” he said. But there is little agreement about what would constitute a fair exchange rate for the yuan and the dollar.

Most economists agree the Chinese currency is undervalued, but they do not know by how much. Some estimates say it is undervalued by 12 per cent, others are as high as 40 per cent.

Apoplectic lawmakers aside, few in Washington, or New York, expect China to quickly overhaul a policy which has helped deliver double-digit economic growth and transformed China from an agrarian economic backwater to a superpower.