Geithner Warns China: 'Undervalued' Yuan Is Inflation Risk

Wednesday, 12 Jan 2011 11:57 PM

 

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China's currency is substantially undervalued and Beijing is moving too slowly to fulfill its promise to let it rise, Treasury Secretary Timothy Geithner said Wednesday.

Geithner said it's in China's own interests to accelerate the pace of currency reform. He said the undervalued yuan is increasing the risk of inflation that will harm Chinese growth.

Geithner addressed a range of economic policy issues at the center of U.S.-Chinese relations in a speech advancing Chinese President Hu Jintao visit to Washington next week.

In addition to the currency issue, he mentioned widespread theft of U.S. intellectual property in China, Beijing's protection policies that hurt U.S. exporters, and accusations that the government provides subsidies to Chinese businesses that violate World Trade Organization rules.

Hu will meet with President Barack Obama on Jan. 19 at a time when economic tensions are rising between the world's two largest economies. Hu also will attend a formal state dinner at the White House and meet with other administration officials. His Jan. 18-21 trip to the United States will also include a stop in Chicago.

The currency issue is expected to be a major focus of the discussions with the Obama administration.

American manufacturers contend that China's yuan currency is undervalued by as much as 40 percent. This gives China a tremendous competitive advantage because it makes Chinese products cheaper in America and U.S. goods more expensive in China.

China in June pledged to allow more flexibility in its currency. But Geithner said that since that time the yuan has risen in value against the dollar by only about 3 percent.

China's undervalued currency imposes costs not only on U.S. companies but on other countries that have more flexible exchange rates, Geithner said.

"This is not a tenable policy for China or for the world economy," Geithner said. "We believe it is in China's interests to allow the currency to appreciate more rapidly in response to market forces. And we believe that China will do so because the alternative will be too costly — for China and for China's relations with the rest of the world."

Last September, the U.S. House of Representatives passed legislation that would impose economic sanctions on China unless the country allowed its currency to rise more quickly. The measure was not taken up in the Senate.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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