WASHINGTON, Dec 2: US Treasury Secretary Henry Paulson urged China on Tuesday to keep its currency flexible and to wean itself from export-led growth in its bid to achieve “balanced” economic expansion despite global financial turmoil.

“Now is an opportunity for China to take measures to ensure sustainable, strong and balanced economic growth for its future,” he told a Washington forum ahead of high-level talks in Beijing this week on the financial crisis and bilateral concerns.China’s yuan currency has suddenly dropped against the dollar in what experts said could be part of a policy shift in Beijing to prop up exports as an immediate cushion against the crisis.

Beijing’s unprecedented four-trillion-yuan (590-billion-dollar) package recently to stimulate the economy also included higher export rebates and removal of caps on bank credit that signalled a return to a highly investment- and export-led growth model.

Paulson, who will lead the US cabinet for the twice-yearly “strategic economic dialogue” on Thursday and Friday in Beijing, said China should rely “more on domestic demand and less on exports to drive growth.”

“Making this shift will take bold leadership and decisive structural reforms to boost demand among households and to improve the allocation of capital within the Chinese economy,” he said.

Paulson also emphasised that reform of China’s exchange rate policies was an integral part of Beijing’s broader reform process.

“China has appreciated the (yuan) over 20 per cent against the dollar since 2005 -- this is important and significant, but it is important that the reform process continue,” he said.

The yuan fell by its maximum daily trading limit for a second consecutive day Tuesday, to 6.8527 against the dollar.

The yuan’s value has been a sensitive issue in the past between China and the United States, which has accused Beijing of deliberately keeping its currency low to protect the competitiveness of Chinese export prices.

US lawmakers have often blamed the snowballing US trade deficit with China on the weak yuan and sought sanctions against the world’s most populous nation.

By allowing the yuan to weaken significantly against the dollar, Beijing can help exporters hit by slumping global demand and rising costs, and help contain rising unemployment.

But aside from raising tensions in the United States and its other top export market Europe, a plunging yuan could increase prices of goods imported into China, dampen domestic spending power and stifle Beijing’s attempt to shift its economy toward domestic consumption, experts said.

—AFP