China has bowed to US pressure to rethink the exchange rate of its currency, the yuan, which some economists have argued is hugely misaligned.
The yuan is costing American jobs, Washington says
After prolonged defiance of US demands for reform, China's central bank governor, Zhou Xiaochuan, has conceded that the yuan's value will eventually be set by the market.
But he gave no timetable for liberalising the currency, and said there was still considerable room for debate about foreign exchange policy.
The yuan is currently pegged at 8.3 to the US dollar, a rate that most outside observers feel gives China an unfair advantage in the export market.
Mr Zhou's conciliatory remarks came at the end of a tense visit to Beijing by US Treasury Secretary John Snow, who had been pushing for an upward revaluation of the yuan.
Holding back change
Mr Snow, under pressure at home amid growing discontent about China's competitive advantage, said he was "encouraged" by the announcement.
But he admitted that Mr Zhou's comment was little more than a reiteration of previous policy.
Mr Snow is under pressure at home
China has resisted any significant change to the dollar peg, since a cheap currency has helped underpin the country's export-driven boom.
Beijing is concerned that any move to make China less competitive could cost jobs in rural areas, where the economy has long been less secure than in the large cities.
Some economists have also pointed out that making the yuan fully convertible could bring in too many potentially destabilising flows of capital, of the sort that triggered a financial crisis in other parts of Asia in 1997-98.
Out of alignment?
China's advantage in international markets has angered many in the US, who point to the $103bn deficit America has in trade with China.
A number of reports recently have blamed an overvalued dollar for job losses in US export-oriented manufacturing - and the position vis-a-vis some Asian currencies is regarded as particularly acutely misaligned.
According to some calculations, the yuan should be revalued 40% higher, in order to restore balance to international markets.
But the Chinese have argued that Washington should do more to boost its own exports, rather than pressuring other countries to solve the problem via exchange rates.
Mr Zhou said it was still too early to tell whether exchange rates were at inappropriate levels.