Nov. 9 (Bloomberg) -- Treasury Secretary Henry Paulson increased pressure on the second-biggest U.S. trading partner, criticizing China for being ``out of step'' with the rest of the world's calls to let the yuan appreciate faster.

China's exchange rate is ``viewed by many countries as a source of unfair competition,'' Paulson said in a speech late yesterday at the China Institute in New York. He also reiterated his support for a ``strong'' dollar, after it fell to a record low against the euro this week.

Paulson noted an increasing number of governments are joining the U.S. in demanding China loosen its controls on the yuan. European Central Bank President Jean-Claude Trichet, who like Paulson will travel to Beijing by year-end, said yesterday that it's ``essential'' China steps up to its ``global responsibilities.''

``China is increasingly seen as out of step with international norms and expectations, as evidenced by the growing number of national leaders and multilateral institutions calling for currency appreciation,'' the Treasury chief said.

Paulson reiterated his view that ``a currency's value is to be determined competitively based upon economic fundamentals'' and, responding to a question, repeated that ``a strong dollar is in our nation's interest.''

Against the euro, the dollar slumped as low as $1.4731 on Nov. 7, the weakest since the European currency was introduced in 1999. It traded at $1.4695 at 9:29 a.m. in Tokyo. The yuan traded at 7.4207 per dollar late yesterday, from 7.4421 the day before.

G-7's Call

Finance ministers and central bankers from the Group of Seven last month urged faster gains in the yuan as Europe and Canada joined the U.S. in complaining the currency is undervalued and fueling exports. Paulson has emphasized currency liberalization in the Strategic Economic Dialogue, the twice- annual talks with China he set up last year.

China's economy is likely to expand more than 11 percent this year, the People's Bank of China said yesterday. The country's record trade surpluses are flooding the financial system with cash, accelerating inflation. President Hu Jintao is seeking to prevent the economy from overheating by increasing interest rates and demanding that banks hold more reserves in a bid to slow lending.

More Flexibility

``China's leaders have pledged to carry out the economic reforms necessary to rebalance their economy,'' Paulson said. ``Implementation is the name of the game. To enable market forces to efficiently rebalance the economy and spread prosperity to all the Chinese, China needs more flexible prices, including a much more flexible, market-driven exchange rate.''

The yuan has gained more than 11 percent versus the dollar since a fixed exchange rate ended in July 2005, a pace Chinese officials contend is sufficient.

People's Bank of China Deputy Governor Wu Xiaoling said last month that the government won't hurry to alter its currency system, as doing so may hurt the economy.

Chinese imports into the U.S. totaled $205.1 billion through August, up 14.6 percent from the year-earlier period, according to U.S. Commerce Department figures. U.S. exports to China during the first eight months of the year totaled $41.2 billion, up 14.2 percent and leaving a $164 billion U.S. trade deficit with China.

Trade Imbalance

China's record trade imbalance with the U.S. has prompted calls from American lawmakers to take a harder line on the currency. The Senate Finance Committee in July approved legislation aimed at pushing China to let the yuan trade more freely.

Paulson said that unless China acts to liberalize its markets, trade friction will rise.

``Frankly, it is easier to keep the U.S. economy open if the American public sees China continuing to open their markets,'' he said. ``By joining efforts, we will be more effective in working against this protectionist tide. Balanced growth -- growth that does not generate large trade imbalances - - is vital to each of our country's prosperities and to sustained global growth.''

Paulson touched on growing consumer concern about Chinese- made products, amid revelations this year of toxic pet food and lead paint on goods imported from China.

Next month, Paulson will make his fifth trip to China since becoming Treasury chief in July 2006. He said the SED talks have improved the U.S. government's ability ``to certify the safety of food and product imports coming from China.''

The secretary also said the two countries must share responsibility in protecting the environment. China's air and water quality is among the worst in the world as economic growth strains its resources, according to a report by the Organization for Economic Cooperation and Development in July.

``China's acute environmental problems are degrading the health of its population and ecosystems as well as undermining China's long-term economic potential,'' he said. ``A healthy environment and a strong economy are not mutually exclusive; they are mutually necessary.''

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Anthony Massucci in New York at amassucc@bloomberg.net

Last Updated: November 9, 2007 00:11 EST