Geithner takes aim at China

FRIDAY, JAN. 23, 2009

Beijing is controlling its yuan, he says

WASHINGTON – As Timothy Geithner moved closer Thursday to confirmation as the next Treasury secretary, he signaled a confrontational shift in the U.S. economic relationship with China, bluntly stating that the new administration thinks Beijing is “manipulating” its currency and will act “aggressively” using “all the diplomatic avenues” to change China’s currency practices.

China’s control of the value of the yuan, analysts say, has kept the currency artificially cheap for years, allowing the Chinese to build massive reserves through trade surpluses and making it harder for many countries, including the United States, to compete with goods made there. It has created what many analysts call a global imbalance in wealth, with the Chinese reaping huge profits even as the United States has sunk further into debt, much of it financed by the Chinese.

The Bush administration warned China about its currency practices but did so with a relatively muted voice. But Geithner’s words – which came in written comments to the Senate Finance Committee – suggested that President Barack Obama is prepared to challenge China far more vigorously. His statement echoed Obama’s campaign vows to take a harder line on China’s trade policies, although he said the immediate emphasis should be on shoring up the faltering U.S. and Chinese economies. Geithner pointed to new data from Beijing showing that growth slowed sharply in 2008 and said a further slowdown in China could delay recovery from the global downturn. “The immediate goal should be for us to convince China to adopt a more aggressive stimulus package as we do our part to try to pass a stimulus package here at home,” he said.

Geithner’s comments are almost sure to anger China, which has already bristled at less aggressive comments by outgoing Treasury Secretary Henry Paulson. Answering U.S. charges, China in the past has countered that lax regulation and faulty policies are to blame for the U.S. crisis. It has cautioned that China should not be made a scapegoat in a time of crisis.

It remains unclear, however, whether the Obama administration intends to go one step further and declare to Congress that China is manipulating the yuan to gain an unfair trade advantage. Such a move could spark punitive action and countermeasures from China.

“It was very interesting to see that Geithner has stated that China is manipulating its currency,” said Eswar Prasad, a senior fellow at the Brookings Institution. “Things are going to get quite heated on the China-U.S. front this year. This statement was clearly a shot across the bow, signaling that this administration does not plan to mollycoddle the Chinese.”

Geithner’s comments to the Senate Finance Committee came just before the panel approved his nomination as the next Treasury secretary, despite concerns about errors on his tax returns in recent years.

The committee, by an 18 to 5 vote, agreed to send Geithner’s nomination to the full Senate, recommending that he serve as Obama’s point man on the sagging economy and the nation’s collapsing financial system. A vote on Geithner’s confirmation has been scheduled for Monday evening.

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