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Sept. 23 (Bloomberg) -- Chinese Premier Wen Jiabao said a 20 percent rise in the yuan would cause severe job losses and trigger social instability, putting the nation on course for a clash with U.S. lawmakers demanding a stronger currency.

“We cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs, and how many migrant workers will return to the countryside” should China acquiesce to demands for a 20 percent to 40 percent gain, Wen said in New York yesterday. “China would suffer major social upheaval.”

The yuan has appreciated about 2 percent against the dollar since June 19, when the central bank said it would pursue a more flexible exchange rate after keeping the currency at about 6.83 versus the U.S. currency for almost two years. The yuan gained 0.1 percent to 6.7079 per dollar on Sept. 21, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

“To make a call for a currency to be revalued in the near term by up to 40 percent is something that only someone who isn’t familiar with the economics of exchange rates would say,” said Glenn Maguire, a Hong Kong-based economist at Societe Generale SA. “It’s just not that feasible for something like that to happen so quickly.”

The yuan’s value isn’t causing the U.S. trade deficit with China or fueling unemployment and there is no basis for a “drastic appreciation” in the currency, Wen said in an evening speech at an event co-hosted by the National Committee on U.S.- China Relations and the U.S.-China Business Council.

Cheap Currency

President Barack Obama earlier this week said China is keeping the currency cheap to aid exports.

The currency is “valued lower than market conditions say it should be” and that gives China “an advantage in trade,” Obama said Sept. 20 at a town-hall discussion on jobs and the economy in Washington. The U.S. House Ways and Means Committee said yesterday it will meet Sept. 24 to consider legislation to push China to raise the value of its currency.

“The main cause of the U.S. trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings,” Wen said at a meeting with U.S. business leaders, including Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein, in New York yesterday. “China doesn’t pursue a trade surplus intentionally.”

November Elections

The U.S. trade deficit with China is widening at a time when Obama is confronted with an unemployment rate of 9.6 percent and the threat for his Democratic party to lose seats heading into the November elections. China ran up a $119 billion trade surplus with the U.S. in the first half of 2010, putting it on course to exceed last year’s total of $227 billion, figures from the U.S. Commerce Department show.

With the “U.S. having outsourced all its manufacturing capacity and production to China, the policy response of getting the currency to appreciate dramatically, or put up tariffs, would ultimately mean the welfare loss is more likely to be in the U.S. than China,” Societe Generale’s Maguire said.

China’s exports are focused on labor-intensive manufacturing, and “the U.S. has long since stopped producing many of these products,” Wen said. “If the U.S. doesn’t import from China, it will import from somewhere else.”

The two countries should instead focus on boosting exports to China, Wen said, calling on the U.S. to ease restrictions on the sale of some goods. The Chinese government is committed to boosting domestic consumption to help rebalance trade, he said.

New York Meeting

Wen is scheduled to meet Obama today at the United Nations General Assembly in New York. Wen said he expected the meeting to improve trust. China has invited U.S. Defense Secretary Robert Gates to visit, he said.

“I am sympathetic to the Chinese argument that the exchange rate doesn’t explain all the problems of the trade imbalance, but it contributes to the problems,” said Mark Dow, who helps manage $3 billion at Pharo Management LLC in New York. “Obama is becoming impatient. They are forced to be more vocal. Obama isn’t ready to expend his political capital to buy time for China to move its currency.”

The Chinese yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports during the global financial crisis.

Economic Imbalance

The economic imbalance China is facing is “hardly avoidable in any country’s development,” Wen said yesterday, adding that China’s trade surplus as a percentage of its economy has been declining in recent years, and that both his country and the U.S. must reject trade protectionism.

Yesterday’s meeting also included PepsiCo Inc. Chief Executive Officer Indra Nooyi and two former Treasury secretaries, Henry Paulson and Robert Rubin. Former Secretary of State Henry Kissinger, who helped re-establish diplomatic ties between China and the U.S. under President Richard Nixon, was the moderator.

Differences with the U.S. are “very easy to resolve,” when compared with “the challenges that Dr. Kissinger faced in those early days,” Wen said.

China needs to take “very aggressive” measures to adjust its economy, Stephen Roach, chairman of Morgan Stanley Asia, said at the meeting. The country needs to improve social security to reduce excess savings, Roach said. Increased Chinese demand would in turn help U.S. exports and jobs, he said.

“The currency fix will not work, despite what you hear from a lot of famous economists and politicians,” Roach said. “It didn’t work for Japan in the late 1980s. It didn’t work for the U.S. when the dollar fell 23 percent on a trade-weighted basis since early 2002.”

China’s surplus in its current account, the broadest measure of trade in goods and services, narrowed to 2.2 percent of gross domestic product in the first half from 9.9 percent in 2008, Wen said yesterday.

--With assistance from Jacob Greber in Sydney. Editors: Ben Richardson, Paul Tighe