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U.S. steps up criticism of China's economic practices

By Sewell Chan

New York Times


WASHINGTON » The Obama administration increased its criticisms of China's economic policies Thursday, as Treasury Secretary Timothy F. Geithner told Congress that China had substantially undervalued its currency to gain an unfair trade advantage, tolerated theft of foreign technology and created unreasonable barriers to U.S. imports.

But the election-year anger from lawmakers seemed to surpass even Geithner's tougher posture. Lawmakers expressed impatience with the administration's familiar reliance on persuasion and negotiation, saying such tactics had yielded little.

In Beijing, a spokeswoman for the Foreign Ministry said that China would not respond to pressure and that a revaluation of the currency, the renminbi, would do little to affect the U.S. trade deficit with China. But the renminbi strengthened by 0.27 percent to end trading at 6.72 per dollar Thursday as the government appeared to belatedly permit the greater currency flexibility it had promised in June.

Dismay over China's currency interventions -- it buys about $1 billion a day to maintain the renminbi's peg to the dollar -- has been a recurring theme for years. The election-season rhetoric, the carefully calibrated strengthening of the Chinese currency on the eve of Geithner's appearance and the administration's struggle to negotiate a diplomatic line set the stage for predictable political theater.

But now, with the United States in a stalled economic recovery and lawmakers facing a restive electorate, the administration is clearly looking for alternative ways to bring pressure on the Chinese.

Geithner urged China to allow "significant, sustained appreciation" of its undervalued currency and even suggested that anything less would strain the relations of the world's two largest economies. He made it clear that President Barack Obama would press the issue with China's leaders, giving rise to a potentially pivotal moment in November when leaders of the Group of 20 economic powers meet in South Korea.

Still, Geithner's plan did not appear to mollify lawmakers.

"There is no question that the economic and trade policies of China represent clear roadblocks to our recovery," Sen. Christopher J. Dodd, D-Conn., chairman of the Senate Banking Committee, told Geithner at a hearing. "I've listened to every administration, Democrats and Republicans, from Ronald Reagan to the current administration, say virtually the same thing, producing the same results. China does basically whatever it wants, while we grow weaker and they grow stronger."

Dodd, who is not seeking re-election, added: "It's clearly time for a change in strategy."

Successive administrations have declined to formally designate China a currency manipulator -- a finding that could initiate U.S. retaliatory measures -- something that has frustrated lawmakers.

"There is no question that China manipulates its currency in order to subsidize Chinese exports," said the top Republican on the committee, Sen. Richard C. Shelby of Alabama. "The only question is, Why is the administration protecting China by refusing to designate it as a currency manipulator?"

Pointing to Geithner, Charles E. Schumer, D-N.Y., said: "I'm increasingly coming to the view that the only person in this room who believes China is not manipulating its currency is you."

Geithner avoided using any version of the word "manipulation," making it clear that he thought such a finding would only antagonize the Chinese without having much practical effect beyond requiring U.S. officials to engage in talks -- something the administration has been doing.

Partly in response to U.S. pressure, China permitted the renminbi to rise 20 percent to 25 percent from 2005 to 2008, but then stopped the currency from strengthening as the financial crisis threatened the strength of its export-oriented economy.

C. Randall Henning, a political scientist in the School of International Service at American University in Washington and an authority on exchange-rate policy, said it was in China's interest to allow the renminbi to rise in value. The currency interventions have raised the threat of inflation and asset bubbles, hurt the poorer sectors of the country's economy and depressed domestic consumption.

But export interests dominate policymaking within the Chinese government, and consumers have little voice within the communist regime, so "we are likely to see policy shift toward appreciation only when price stability, financial stability or exports are threatened," Henning said.

U.S. business interests are sharply divided on the currency issue. Domestic manufacturers and labor unions say China's currency policies have eviscerated industrial employment. But large multinational companies, particularly those with extensive production facilities in China, benefit from a weak renminbi just as Chinese manufacturers do.

Those companies, along with Wall Street firms, are fearful -- as Geithner acknowledged -- that excessive pressure could lead China to retaliate against their operations in China. In the worst case, they are worried that the two countries could get mired in a trade war.

A House bill with more than 140 sponsors would virtually compel the administration to find China to be a manipulator and impose duties or other trade barriers in retaliation. Geithner does not support the proposal, which the administration says would violate U.S. obligations as a member of the World Trade Organization.

Geithner said the Treasury would "take China's actions into account" in preparing the administration's next foreign exchange report, which is due to Congress on Oct. 15 but will probably be delayed, as previous reports have been, as officials continue to talk to the Chinese.

The secretary also laid out other concerns about China's policies, including "indigenous innovation," a set of practices that American officials say result in discrimination against foreign products and technology.

The secretary attacked what he called "rampant" violations of intellectual property rights and an "unacceptable" level of theft of technology.

He also criticized a proposal by China to require that certain products be accredited before being sold to its government. The United States says that such requirements might violate standards of the WTO, which China joined in 2001.

Geithner pledged that the administration would be "aggressively using the full set of trade remedies available to us," including filing new cases with the WTO. The U.S. trade representative's office filed two such cases Wednesday.

Ian Johnson contributed reporting from Beijing.


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