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US-China tensions rise over yuan US Treasury Secretary Geithner says yuan is undervalued
(about 3 hours later)
The US has filed two new cases against China at the World Trade Organization (WTO), claiming that Beijing has been breaching global trade rules. The US Treasury Secretary, Timothy Geithner, says China's currency is significantly undervalued.
The move comes at a time of rising tensions between Beijing and Washington, notably over the level of the Chinese currency, the yuan. Mr Geithner told a key committee of Senators that he was examining what mix of tools would encourage China to let the yuan appreciate more quickly.
US Treasury Secretary Timothy Geithner is to testify at two congressional hearings on the yuan later. Unlike most other major currencies, China does not allow its currency to fluctuate freely according to market demand.
In prepared comments, he expressed concern about the slowness of change. It intervenes to keep it low, but said in June it should be allowed to rise.
"We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited," he said. Mr Geithner said the yuan had appreciated just 1.9% against the dollar since then.
But a spokeswoman for the Chinese Foreign Ministry said: "The appreciation of the renminbi [yuan] can't solve the trade deficit with China.
"Pressure cannot solve the issue. Rather, it may lead to the contrary."
China has been accused by the US and others of holding the value of the yuan down, making its exports artificially cheap.China has been accused by the US and others of holding the value of the yuan down, making its exports artificially cheap.
However, in recent months Beijing has taken steps to make its currency more flexible by raising the centre point of the currency's official trading band. Faster appreciation
Mr Geithner told the Senate Banking, Housing and Urban Affairs committee: "We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited."
He hinted that the US was preparing to apply pressure on the nation to force it into allowing faster appreciation.
"We are examining the important question of what mix of tools, those available to the United States as well as multilateral approaches, might help encourage the Chinese authorities to move more quickly."
In recent months, there have been renewed tensions between Beijing and Washington, notably over the level of the Chinese currency, the yuan.
The US has a large trade gap with China, and although its exports have risen by 36% so far this year, they remain expensive to the Chinese as long as their currency is kept low against the dollar.
A spokeswoman for the Chinese Foreign Ministry said: "The appreciation of the renminbi [yuan] can't solve the trade deficit with China.
"Pressure cannot solve the issue. Rather, it may lead to the contrary."
WTO casesWTO cases
BBC World Service's business reporter Theo Leggett says that while trade tensions between Washington and Beijing are not new, they have been escalating in recent weeks, amid complaints from US politicians that China is keeping its currency artificially low against the dollar. Trade tensions between Washington and Beijing are not new, but they have been escalating in recent weeks, amid complaints from US politicians that China is keeping its currency artificially low against the dollar.
The Obama administration has indicated that it plans to take a tougher stance with China on trade issues, including demanding that Beijing move more quickly to reform its currency system.The Obama administration has indicated that it plans to take a tougher stance with China on trade issues, including demanding that Beijing move more quickly to reform its currency system.
The two cases the US has brought at the WTO are a sign of that new approach.The two cases the US has brought at the WTO are a sign of that new approach.
The first case concerns duties imposed by China on imports of specialist steel used in the power generation industry.The first case concerns duties imposed by China on imports of specialist steel used in the power generation industry.
China says they were introduced to prevent subsidised shipments from driving local producers out of business, but the US trade representative Ron Kirk has accused Beijing of protectionism. China says they were introduced to prevent subsidised shipments from driving local producers out of business, but the US Trade Representative, Ron Kirk, has accused Beijing of protectionism.
The second complaint concerns the market for electronic payment systems in China, which is dominated by a single domestic firm, China Union Pay.The second complaint concerns the market for electronic payment systems in China, which is dominated by a single domestic firm, China Union Pay.
The US says its providers are being excluded from the bulk of this market.The US says its providers are being excluded from the bulk of this market.