By Li Yanping
Jan. 24 (Bloomberg) -- China’s commerce ministry said the country hasn’t manipulated the value of its currency to promote exports and that accusations of government tampering in foreign exchange will fuel U.S. protectionism.
“China will keep its currency stable and will not depreciate the currency to support exports,” said a ministry spokesman who couldn’t be identified under ministry rules.
The official statement today followed comments released on Jan. 22 by Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, that Obama believes China is “manipulating its currency.”
Clashes over the yuan’s value threaten to stoke tension between two of the world’s biggest economies and undermine cooperation to counter the global recession. China limited appreciation of the yuan against the dollar in July 2008 after the currency rose 21 percent against the dollar following the end of a fixed exchange rate three years earlier.
“China has never tried to gain advantage in international trade by manipulating its currency,” the commerce ministry official said. “This kind of wrong accusation against China on exchange rate issues will intensify protectionism within the U.S., and it will not help resolve the problem.”
People’s Bank of China Vice Governor Su Ning echoed the commerce ministry comments in an article published by the official Xinhua News Agency today that called Geithner’s allegations “untrue and misleading.” An official in the central bank’s press office declined to comment further.
‘Optimal Strategy’
Geithner’s remarks on manipulation were a shift from policy pursued by the Bush administration, which stopped short of using the term in criticizing China’s exchange-rate management. Some U.S. lawmakers are seeking measures to punish trading partners perceived to have undervalued exchange rates.
“China will first protect its interest before addressing concerns from other economies,” said Sherman Chan, a Sydney, Australia-based economist at Moody’s Economy.com. “The optimal strategy for China is to keep its currency steady.”
Geithner made the remarks in written responses to questions from Senate Finance Committee members that were posted on the panel’s Web site. The committee voted 18-5 to approve the nomination of Geithner, 47, who is the president of the Federal Reserve Bank of New York.
Senator Richard Durbin of Illinois, the second-ranking Senate Democrat, said the chamber will start debating Geithner’s nomination at 4 p.m. Washington time on Jan. 26 and will vote at about 6 p.m.
‘More Aggressive’
“Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency,” Geithner said. “The question is how and when to broach the subject in order to do more good than harm.” Obama’s team will “forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”
The new U.S. administration will also press China to “adopt a more aggressive stimulus package” to boost its domestic economy, Geithner said.
A worsening slowdown in China’s economy, the world’s third biggest, may encourage policy makers to limit gains in the currency to help exporters as factories close, throwing millions of people out of work.
“China should be expecting a very tough relationship with the new administration,” according to Frank Gong, China strategist at JPMorgan Chase & Co. “China will be a natural scapegoat for the problems in the U.S.”
Gong doesn’t expect China to devalue its currency because the drop in exports is related to a decline in demand, not the price of goods.
Value ‘Manipulation’
“China can’t increase exports by making them cheaper because there is no demand,” he said, adding that a devaluation may prompt similar moves around Asia, heightening the risk of trade war.
The ministry statement isn’t the first time the Chinese government has responded to comments on its currency from Obama. In October, a letter from Obama, released by a U.S. textile industry group, linked China’s trade surplus with “manipulation” of the yuan’s value.
“The yuan exchange rate is not the cause of the U.S. trade deficit,” Chinese Foreign Ministry Spokeswoman Jiang Yu said at the time. “I hope the U.S. can expand its exports to China and reduce barriers to trade and investment.”
Geithner’s comments also stoked concern that demand from China, the largest foreign investor in U.S. government debt, may wane. China held about $682 billion of Treasuries as of November, and overtook Japan as the biggest overseas owner of the debt last year.
To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net
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