As key Chinese economist cautioned that appreciation of local currency will drive exporters out of business, China’s yuan slid lower against the U.S. dollar late Friday afternoon due to the U.S. unit’s strength against other major currencies during Asian trading hours.

Comments by Chinese bankers today underscores the domestic political pressures on Beijing amid growing international calls for China to let the yuan rise.

Vice Commerce Minister Zhong Shan told Wall Street Journal Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.

On the over-the-counter market, the dollar was at CNY6.8265 around 0930 GMT, up from Thursday's close of CNY6.8261. It traded between CNY6.8258 and CNY6.8267, Dow Jones reported.

The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of currencies, rose to 80.429 at 0930 GMT from 80.272 late Thursday in New York.

However, the dollar's gains in China's onshore market were capped by the steady central parity. The dollar-yuan central parity was set at 6.8263, almost unchanged from 6.8262 Thursday.

“The market is quiet today, as the strength in the overnight dollar only pushed the central parity higher by one point,” said a Shanghai-based foreign bank trader.

Traders said they expect the dollar to climb in the onshore market as dollar demand is likely to increase because of import payments at month-end.

Offshore, one-year dollar-yuan nondeliverable forwards were at 6.6601/6.6641, down from 6.6650/6.6700 late Thursday.

Mr. Zhong talked about a potential tipping-point effect to describe the fragile situation of many exporters. “Water doesn’t boil if it is heated to 99 degree Celsius. But it will boil if it is heated by one more degree,” he said. Likewise, “a further rise in the yuan by a very small magnitude might cause fundamental changes” to exporters in China, he said.

The yuan climbed 21% against the dollar from 2005 to 2008, when China adopted a managed-float currency system under which the yuan’s value was linked to a basket of currencies. But the yuan has been kept almost unchanged against the dollar since the outbreak of the global crisis to help Chinese exporters, which has prompted much criticism from abroad.

Though China might have replaced Germany as the worlds’ biggest exporter in 2009, but it cannot be considered a “powerful trading nation” according to Vice Commerce Minister Zhong Shan.

It is expected that Chinese exports will grow further in 2010. Zhong did not elaborate further on this. Since the global financial crisis, China’s exports affected to a great extent, falling 18.8% in the first eleven months last year. It is noted that the market share for Chinese products has increased in 2009 because sales from other countries have fallen further. This was stated by Zhong in a forum at University of International Business and Economics in Beijing.

There have been reports of other countries blaming China’s unofficial policy of bringing down the yuan to the dollar in 2008 and making products that are competitive in an artificial sense. China is bound to feel pressure on its Yuan policy but shall be maintaining stability in replication of its government policy. Zhong also said that the growth in exports is essential at this point to raise economic growth and create more jobs in the country.

As an example he stated that the exports of 30 million shirts have benefitted Chineses economy more than exporting one Boeng 747. This was in reference to a debate over support China should offer to labor intensive export industries versus how much it should move up the value chain. By this he meant since exporting 30 million shirts will create jobs for approximately 10,000 people by which their families and 30,000 will have a comfortable life.

China is also pressurized from trading partners to bring balance to its outsized trade surplus. But Zhong particularly mentioned that it does not mean a reduction in exports.

President Obama has told China to import more and export less, thereby save less and spend more. On this Zhong disagrees that China has been exporting too much.