Just as US and Chinese officials sit down for their annual strategic dialogue in Beijing, an unintended effect of Europe's financial turmoil has been to upset the handling of China's currency peg. Though the sinking euro makes the economic case for a renminbi revaluation less urgent, it does not much alter the politics of the peg – even less the need for fundamental restructuring in the Chinese economy.

Only weeks ago, a revaluation of the renminbi against the dollar seemed a done deal. Partly for economic reasons and partly to stave off US political pressure, China seemed ready to allow a small appreciation before the Group of 20 summit next month. Investors' flight from the euro, however, throws this prospect into doubt.

China's repegging to the dollar after several years' gradual appreciation was meant to provide the economy with an anchor as a world slowdown was coming into sight. The flip side was to cut loose any moorings to other currency areas. Since the start of the year the euro's slide has made Chinese exports 14 per cent more expensive in the eurozone, which rivals the US as China's biggest market.