Geithner Said to Push G-7 to Ease Criticism of China Policy

By Rebecca Christie and Michael Forsythe

March 12 (Bloomberg) -- Treasury Secretary Timothy Geithner pushed Group of Seven officials to soften criticism of China last month after his accusation that the nation was “manipulating” the yuan strained ties with the U.S.’s second- biggest trading partner, said a person briefed on the matter.

G-7 finance ministers and central bankers on Feb. 14 welcomed “China’s fiscal measures and continued commitment to move to a more flexible exchange rate.” By contrast, the group in April 2008 pressed for “accelerated appreciation” of the yuan.

Geithner’s behind-the-scenes effort came just weeks after he publicly accused China of “manipulating” its currency during his Senate confirmation hearings, drawing criticism from the Chinese. Donald Straszheim, a former Merrill Lynch & Co. chief economist, said the G-7 shift may signal the U.S. Treasury won’t label China a manipulator in a report due April.

“I would be very surprised if we would bring up the currency manipulator terminology again any time soon,” said Straszhiem, who heads Straszheim Global Advisors Inc. in Los Angeles. “I think it would be a mistake and I don’t think they’ll do that.”

The G-7 made its statement even after the appreciation of the renminbi stalled last year as China’s economy began to suffer the impact of the global economic slowdown. Treasury spokeswoman Heather Wong was not immediately available for comment.

Flurry of Calls

Geithner’s move to tone down the G-7 statement came amid a flurry of phone calls and meetings he had with Chinese officials, including Vice Premier Wang Qishan and Finance Minister Xie Xuren, according to details of Geithner’s schedule provided by the administration.

“Geithner’s change of attitude showed that he’s paying more attention to China’s effort in reforming its currency over the past few years,” said Peng Xingyun, a senior international finance researcher at the Chinese Academy of Social Sciences, a government-backed institute in Beijing.

China is the biggest foreign owner of U.S. Treasuries, holding $696.2 billion at the end of December, according to Treasury Department figures.

The yuan was little changed at 6.8393 a dollar as of 12:08 p.m. in Shanghai. China’s currency has traded between 6.81 and 6.89 a dollar since mid-2008.

London Summit

Geithner will meet with Xie tomorrow in the U.K. as part of sessions with finance ministers from 20 of the world’s industrial and developing nations. The G-20 meeting will lay the groundwork for a leaders’ summit on April 2 in London.

Yesterday, Geithner prepared for the upcoming summit in a Washington meeting with Yang Jiechi, China’s foreign minister. A U.S. administration official said Geithner and Yang discussed their governments’ efforts to jump-start their economies, as well as strategies to cooperate at the meetings this weekend and press for broader coordination of fiscal stimulus measures.

Geithner, 47, also called on China to support a new U.S. proposal to expand the International Monetary Fund’s supplementary borrowing program by about $500 billion. China already has pledged “substantial support” to the fund, he said.

“We very much hope they’d be willing and interested to be part of this,” Geithner told reporters yesterday.

President Barack Obama and Chinese President Hu Jintao are preparing to announce in April the new shape of regular high- level talks between the U.S. and China. The previous administration held twice-yearly meetings led by former Treasury Secretary Henry Paulson.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Michael Forsythe in Washington at mforsythe@bloomberg.net.