China hits back at US in currency row

China’s central bank on Saturday said US accusations that it was manipulating the yuan currency were misleading, a day after Beijing cautioned incoming Secretary of State Hillary Clinton to handle their ties with care.

The remarks from Su Ning, a vice-governor of the People’s Bank of China, were the bank’s first public reaction to comments from US Treasury Secretary-designate Timothy Geithner, who said this week that Beijing was manipulating its currency exchange policies to gain an unfair trade advantage.

“These comments are not only out of keeping with the facts, even more so they are misleading in analysing the causes of the financial crisis,” Su said of Geithner’s comments to the Senate Finance Committee, according to the official Xinhua news agency.

The exchange suggests a testy start to relations between the Obama administration and Beijing, which may tarnish vows of cooperation in combating the global economic slowdown and security threats.

China worries that its already slowing exports will be even harder hit by US policies to narrow their trade imbalance.

Many US lawmakers believe the yuan is much undervalued, giving Chinese exporters a big advantage that they blame for US job losses and the US trade deficit, which hit a record $256,3-billion in 2007.

Su did not directly accuse Geithner of trade protectionism. But the Chinese official’s warning was clear enough.

“We believe that faced with the financial crisis there should be a spirit of self-criticism,” Su said while visiting a business newspaper’s office in Beijing, according to Xinhua.

“The international community is currently working together in actively responding to the financial crisis, and it must avoid exploiting different excuses for renewing or encouraging trade protectionism, because these are of no help in withstanding the financial crisis.”

Su’s swipe at Geithner came after China’s Foreign Minister urged Clinton to be careful with sensitive issues that could strain ties, calling the relationship between their two nations one of the world’s most important.

Foreign Minister Yang Jiechi made the remarks to Clinton, settling into her new job as Washington’s top diplomat, in a telephone call on Friday, the Chinese Foreign Ministry website reported on Saturday.

“The China-US relationship is one of the world’s most important bilateral relations,” Yang told Clinton, according to the report.

Each side should “respect and show consideration for the other’s core interests and appropriately handle differences and sensitive issues”, he said.

The report did not specify those issues, but Beijing considers Taiwan its most sensitive topic in dealings with Washington.

Beijing says self-ruled Taiwan must accept eventual reunification with the mainland and objects to Washington’s military aid to and political support for the island. China has also been angered by US pressure over human rights and Tibet.

Yang, a former ambassador to Washington, said the two powers should “handle bilateral relations by adhering to a strategic high-point and a long-term perspective”.

Trade disputes
Ties between the United States, the world’s biggest economy, and China, with its bulging exports and foreign exchange reserves, have also been strained by trade disputes that could worsen during the global economic slowdown.

Under former president George Bush, the Treasury Department urged Beijing to move to a market-determined exchange rate and saw some progress since July 2005.

But it refused to formally call China a currency manipulator, which under US law would require the Treasury Department to begin “expedited” negotiations with Beijing to reduce China’s trade surplus and eliminate any “unfair” currency advantage.

The China Daily, an English-language paper that often reflects official policy, said Geithner’s position was “a clear move away from the stance of the Bush administration”.

The official Xinhua news agency echoed that view.

“This may signal that with the Obama administration in office, China faces growing pressure from US trade protectionism,” it said, citing Beijing economists.

The dollar has weakened by about 16% against the yuan since China revalued it in mid-2005, according to Reuters data.
But many US industry groups want much more drastic action.

The yuan closed lower against the dollar on Friday and traded mostly below the Chinese central bank’s mid-point, with speculation that Geithner’s comments could spark a brief period of modest yuan depreciation. - Reuters

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