MARK O'NEILL in Shanghai

On September 22, 1985, finance ministers and central bank governors from the five richest countries agreed at the Plaza Hotel in New York to reduce the international value of the US dollar.

The value of the yen against the dollar rose to 120.9 by 1987, up from 240 before the accord. Within a few years, Japan fell into a long-term recession from which it has never fully recovered.

As international pressure mounts on China to revalue its currency, with millions of dollars in hot money flooding in to bet that it will, a second Plaza Accord could prove a nightmare scenario for Beijing.

It could unfold as follows: the yuan is revalued by 20-30 per cent, exports slump while imports soar, the trade surplus turns into a deficit and the hot money floods out as fast as it came in.

"Most of the pressure to revalue the yuan is coming from the United States, just as, 19 years ago, the biggest pressure on Japan was coming from the US," said Mei Xinyu, an economist at with the Ministry of Commerce. "The lesson of Japan's failure must open our eyes."

For many Chinese, as well as Japanese, the Plaza Accord was as much about politics as economics, a move by Washington calculated to bat down an upstart challenge to its economic dominance.

If that was indeed the intention of the US leaders, it succeeded in an astonishing way - a dozen men meeting in that hotel room achieved what billions of dollars spent in the currency markets, years of trade negotiations and talks on "structural impediment initiatives" failed to do.

"The bubble in the value of assets forced the Bank of Japan to keep interest rates very low," Mr Mei said. "When the bubble burst, it left many Japanese companies and individuals burdened with billions of yen of debt and made a recovery extremely difficult.

"Nineteen years have passed and the focus of the international currency market has moved from the yen to the yuan," he said.

For Chinese scholars, Japan foolishly agreed to a drastic revaluation of its currency because it was diplomatically weak and too dependant on the United States to refuse.

The message for China is not to make the same mistake.

That is what lay behind the attack on the US by Premier Wen Jiabao in Vientiane on Sunday, a rare, perhaps unprecedented, public criticism of US monetary policy.

"The US dollar is depreciating and there are no attempts to manage it. What is the reason for this? Should not the relevant parties take measures? Revaluation [of the yuan] should be introduced when the timing is right. If society continues its rampant speculative activities on the yuan, as now, it will be impossible for us to introduce the measures," he said.

For Beijing, the fall of the dollar is too deep and too rapid and it is that which is causing the pressure on the yuan. Its peg of 8.3 to the dollar since 1994 has been until now an unqualified success, helping it to survive the Asian financial crisis and creating conditions for the fastest increase in national wealth in history.

It is willing to loosen the peg, by linking the yuan to a basket of currencies, but does not want to do so under pressure.

By keeping the capital account closed, it has more options than the Japanese leaders in 1987, who had to face a raging foreign exchange market every day.

Mr Mei summarised the consensus among the leadership.

"Of course, over the long term, the yuan will have to be revalued. In the not too distant future, it is necessary to institute a more flexible exchange rate mechanism. But, if we raise the level too quickly in too short a time, we will not only have to face the situation of Japan after the Plaza Accord but many additional problems."

The argument is that Japan in 1987 was much stronger than China is now. It had a developed economy and derived export earnings from its own technology and products, while more than half of China's export earnings come from foreign-invested factories that import raw materials and export the finished products, so that China earns only a small processing fee.

China's wealth and export earnings are concentrated in the coastal regions, with the centre and west chronically short of capital. A higher yuan would leave these regions struggling to compete for investment with Vietnam, the Philippines, India and other developing countries.

A higher yuan would make Chinese companies look for foreign assets to buy, just as Japanese firms went on a shopping spree in Europe and North America, rather than investing in the poorer regions of their own country. China's prosperity is not as strong as it appears, with its weak banking system and millions of people entering the workforce every year. The margin for error is small.