US Treasury Secretary Geithner says yuan is undervalued

Timothy Geithner Mr Geithner says China's currency is significantly undervalued and needs to rise more quickly

The US Treasury Secretary, Timothy Geithner, says China's currency is significantly undervalued.

Mr Geithner told a key committee of Senators that he was examining what mix of tools would encourage China to let the yuan appreciate more quickly.

Unlike most other major currencies, China does not allow its currency to fluctuate freely according to market demand.

It intervenes to keep it low, but said in June it should be allowed to rise.

Mr Geithner said the yuan had appreciated just 1.9% against the dollar since then.

China has been accused by the US and others of holding the value of the yuan down, making its exports artificially cheap.

Mr Geithner said he would try to bring in other world powers to push China for trade and currency reforms, saying the US would use a G20 summit in Seoul in November to try to mobilize trading partners to get Beijing to let the yuan strengthen faster.

'Currency manipulator'

Congress is pressuring the Obama administration to take a tougher stand with China over its trade practices.

Some members of the committee have called China a currency manipulator.

Senator Richard Shelby, the committee's most senior Republican, said, "There is no question that China manipulates its currency in order to subsidize its exports. The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?"

Mr Geithner told the Senate Banking, Housing and Urban Affairs committee the issue was a pressing one - but he was not drawn into echoing Mr Shelby's words.

Slow appreciation

He said: "We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited."

He hinted that the US was preparing to apply pressure on the nation to force it into allowing faster appreciation.

"We are examining the important question of what mix of tools, those available to the United States as well as multilateral approaches, might help encourage the Chinese authorities to move more quickly."

In recent months, there have been renewed tensions between Beijing and Washington, notably over the level of the Chinese currency, the yuan.

The US has a large trade gap with China, and although its exports have risen by 36% so far this year, they remain expensive to the Chinese as long as their currency is kept low against the dollar.

A spokeswoman for the Chinese Foreign Ministry said: "The appreciation of the renminbi [yuan] can't solve the trade deficit with China.

"Pressure cannot solve the issue. Rather, it may lead to the contrary."

WTO cases

Trade tensions between Washington and Beijing are not new, but they have been escalating in recent weeks, amid complaints from US politicians that China is keeping its currency artificially low against the dollar.

The Obama administration has indicated that it plans to take a tougher stance with China on trade issues, including demanding that Beijing move more quickly to reform its currency system.

The two cases the US has brought at the WTO are a sign of that new approach.

The first case concerns duties imposed by China on imports of specialist steel used in the power generation industry.

China says they were introduced to prevent subsidised shipments from driving local producers out of business, but the US Trade Representative, Ron Kirk, has accused Beijing of protectionism.

The second complaint concerns the market for electronic payment systems in China, which is dominated by a single domestic firm, China Union Pay.

The US says its providers are being excluded from the bulk of this market.

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