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• Geithner Delays Currency Report,
Markets Urges China to Move to More Flexible
By Greg Stohr and Phil Mattingly
Industries Rate
Economy April 4 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner delayed a
Politics scheduled April 15 report to Congress on exchange-rate policies, sidestepping
• Service Industries in U.S. Probably
Law a decision on whether to accuse China of manipulating the value of the yuan.
Grew at Fastest Rate Since June 2007
Environment Geithner in a statement yesterday urged China to move toward a more flexible
Science currency and said a series of meetings over the next three months will be • Increase in Employment in March a
Opinion “critical” to bringing policy changes that lead to a stronger, “more balanced”  Signal That U.S. Recovery Is
Spend global economy. The delay comes as Chinese President Hu Jintao is scheduled Broadening
Sports to visit Washington for a nuclear summit April 12-13.
Arts and Culture
Editors' Video Picks The Treasury chief faces demands from Congress to label China a currency
Bloomberg Markets manipulator for keeping the value of the yuan little changed from about 6.83 to
Magazine the dollar for almost two years. Geithner is instead betting that China will take
Special Report steps on its own in the next several months to strengthen its currency,
 
analysts said.
RESOURCES “There is pressure within China for a yuan revaluation and, as long as exports
Bloomberg TV continue to rebound, there is a good chance that it will happen,” said Elizabeth
Bloomberg Radio Economy, director of Asia studies at the Council on Foreign Relations in New
Bloomberg Podcasts York. “If, however, there is a lot of public pressure emanating from the U.S.,
Bloomberg Press that will likely give support to those in the Chinese government who do not
Find Bloomberg TV want to see a revaluation.”

Geithner’s statement said countries such as China “with inflexible exchange


rates” can promote global growth by “combining policy efforts to strengthen
domestic demand with greater exchange-rate flexibility.”

“A move by China to a more market-oriented exchange rate will make an


essential contribution to global rebalancing,” h e said.

Lawmakers Critical

Lawmakers from both parties said Geithner is wrong to expect that


negotiations will prompt such a move from China’s leaders. With the U.S.
unemployment rate hovering near a 26-year high, some lawmakers say
China’s policies give its exporters an unfair advantage over their U.S.
competitors.

“We are disappointed, but not surprised, by the administration’s decision,” 


Senator Charles E. Schumer, a New York Democrat, said in an e-mailed
statement yesterday. “After five years of stonewalling, punctuated by
occasional, but halting action by the Chinese, we have lost faith in bilateral
negotiations on this issue.”

Legislation

Schumer, along with four other senators including South Carolina Republican
Lindsey Graham, last month introduced legislation to require the Treasury to
determine if a nation had a currency misaligned with the dollar and make it
easier to respond by imposing import duties.

The Treasury’s delay “underscores the urgent need” for Congress to pass such
legislation, said Alan Tonelson, research fellow with the U.S. Business and
Industry Council, a Washington-based organization representing about 2,000
manufacturing companies.

“There can be no question that attempts to negotiate an end to China’s


currency manipulation have failed for eight years and it is long past time for
unilateral U.S. responses,” Tonelson said in an interview yesterday.

Schumer, a member of the Senate Finance and Banking committees, said in his
statement he intended to push forward with his legislation.

Denial

“The past few years have proven that denying the problem doesn’t solve
anything,” Senator Charles Grassley of Iowa, the top Republican on the
Senate Finance Committee, said in an e- mailed statement. “The Treasury
Department should cite China as a currency manipulator.”

Representative Sander Levin of Michigan, the Democratic chairman of the


House Ways and Means Committee, was more supportive.

The delay “is for a definite period and for a defined purpose,” Levin said. “If
the multilateral effort does not result in China’s making significant changes, the
administration and Congress will have no choice but to take appropriate
action.”

Geithner, in an April 2 interview on Bloomberg Television, expressed confidence


that China will decide a stronger yuan is in the country’s interest, saying the
U.S. is trying to “maximize the chance that they move quickly” to let the yuan
appreciate.

Stronger Yuan

Last month, Chinese executives, in interviews with Bloomberg News, joined in


backing a stronger yuan, even as Premier Wen Jiabao says the currency isn’t
undervalued.

Yang Yuanqing, chief executive officer of Beijing-based computer maker


Lenovo Group Ltd., said gains would boost consumers’ purchasing power. Qin
Xiao, chairman of China Merchants Bank Co., said an end to the yuan’s 20-
month peg to the dollar would let lenders set market-based interest rates.
Chen Daifu, chairman of Hunan Lengshuijiang Iron & Steel Group Co., said a
stronger currency would cut import costs.

Yuan forwards posted their biggest weekly gain in almost three months on
mounting speculation China will loosen its grip on the currency after data
showed an economic recovery is gathering pace. Twelve-month non-
deliverable forwards advanced 0.2 percent to 6.6491 per dollar as of 5:30 p.m.
April 2 in Hong Kong, reflecting bets the currency will strengthen 2.7 percent
from the spot rate of 6.8256, according to Bloomberg data.

The yuan probably will strengthen in time without the Chinese government
taking any public action, said Donald Straszheim, the director of China
research at International Strategy & Investment Group.

“They will start to allow the currency to gradually appreciate, and we will know
what has happened by looking at the tape,” Straszheim said.

Not Since 1994

The Treasury hasn’t labeled any country a currency manipulator since 1994.
The Treasury’s currency report has been delayed in the past under both
Democratic and Republican administrations. In January 1999, President Bill
Clinton’s Treasury even published a compendium of those that had been due
in 1997 and 1998 and President George W. Bush’s administration also
repeatedly missed the deadline.

The latest delay “is probably the politically smart thing to do,” with Hu planning
to be in Washington for talks with President Barack Obama, said Charles
Freeman, a China expert at the Center for Strategic and International Studies
in Washington.

“I’m not sure Treasury really knows what it wants to do yet,” said Freeman.
“It’s testing the political waters on Capitol Hill.”

Geithner said April 2 that Hu’s visit, along with a meeting of Group of 20
finance ministers and central bank governors this month and a U.S.-China
Strategic and Economic Dialogue scheduled for May, will offer “the best avenue
for addressing U.S. interests at this time.”

“Our objective is to use the opportunity presented by the G-20 and S&ED
meetings with China to make material progress in the coming months,” he
said.

To contact the reporters on this story: Phil Mattingly in Washington at


pmattingly@bloomberg.net; Greg Stohr in Washington at
gstohr@bloomberg.net.

Last Updated: April 4, 2010 00:01 EDT

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