By Maureen Fan
Washington Post Foreign Service
Saturday, January 24, 2009 12:57 PM
BEIJING, Jan. 24 -- A top official at China's central bank hit back Saturday at comments by U.S. Treasury Secretary-designate Timothy Geithner, who said the Obama administration believes that China is manipulating its currency.
Su Ning, vice governor of the People's Bank of China, called Geithner's remarks misleading and "out of keeping with the facts," and said they could sidetrack efforts to manage the global financial crisis, the official New China News Agency reported.
"We should avoid any excuse that might lead to the revitalization of trade protectionism. Because it will do no good to the fight against the crisis, nor will it help the healthy and stable development of the global economy," Su said during a visit to a Beijing business newspaper.
The exchange underscored both a tougher stance by the Obama administration on China's trade policies and China's concern that protectionism in the United States could be on the rise. It also serves as a reminder of how the financial crisis has complicated diplomatic relations between the two countries.
Some economists argue that China has kept its currency, the yuan, also known as the renminbi, artificially low to keep domestic prices down and create trade surpluses. That led to an imbalance, as Americans over-borrowed and became indebted to their largest foreign creditor: China.
In documents submitted to the Senate Finance Committee and released Thursday, Geithner wrote: "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency."
China says its price advantages are the result of the low cost of labor, land and other resources. With exports and imports plunging, China is worried about the impact of the global downturn on unemployment and instability and an aggressive U.S. trade policy will only worsen the situation.
"The currency rate has already appreciated in recent years. The recent depreciation is small and temporary," said Song Hong, a research fellow at the Chinese Academy of Social Sciences. Song said the trade imbalance was caused not by manipulation but because China imports so many semi-manufactured goods from elsewhere in Asia, processes them and then exports them again.
With Vietnam, South Korea and other Asian countries hard hit by the downturn depreciating their currencies, it was unrealistic to expect China to do the opposite, Song added. "It's possible a trade war will occur between the two countries. Even if the U.S. doesn't go too far in terms of protectionism, the new government will pressure China, and this can trigger trade conflicts."