Will China finally allow its currency to appreciate? That may not seem like the most pressing matter for President Obama s first visit to Beijing. But it s a critical issue to financial markets and underscores the increasingly testy trade relations between the countries. And Obama took the occasion to press the point at a joint meeting with president Hu Jintao today. Letting the yuan rise would make an essential contribution to the global rebalancing effort, said Obama, who added that he was pleased to note China s commitment to move toward a more market-oriented exchange rate over time.

Whether China will let the yuan gain value is another matter, of course. China has long had a policy of letting the yuan slowly appreciate but has kept it pegged at 6.83 to the dollar since July 2008, in response to the financial crisis. A rising yuan could help address global trade imbalances, especially the soaring U.S. trade deficit with China. And IMF chief Dominique Strauss-Kahn also urged China to let the yuan rise a bit quicker. The dollar, meanwhile, has been trading at 15-month lows against major currencies, and China has been purchasing dollars by the trillions to stop its slide even further; it now holds over $2.3 trillion in dollar reserves, twice the level of any other nation.

Ideally, the U.S. would like China to bolster domestic consumption and become less reliant on exports to fuel GDP growth. But it s a sensitive issue in China, which has become a global power on the strength of its export machine and doesn t want to take steps that could derail it. China has the world s fastest growing major economy, expected to post growth of 8.9% next year, according to Standard Chartered Bank. But China s recovery is still fragile, analysts say, and China has grown nervous about rising U.S. protectionism, which has emerged in new U.S. tariffs on Chinese-made tires, steel pipes and other goods. At their joint appearance today, Hu said the U.S. needs to oppose and reject protectionism in all its manifestations.

If China does allow the yuan to rise (by more than a token amount), analysts say it will be a sign that China is moving from an export-driven economy to one fueled more by domestic consumption. That would be more along the lines of the U.S. model, where spending accounts for over two thirds of the economy--though analysts don t expect that to happen anytime soon.

This article is an excerpt from our Early Bird markets story, which was originally published the morning of Nov. 17.