U.S. Treasury Secretary Timothy F. Geithner said China must let the yuan rise more quickly to show trading partners that it’s following through on its promises.
“Frankly they haven’t let the currency move very much so far,” Geithner said yesterday in an interview on Bloomberg Television in Washington. “They know they’re just at the beginning of that process and I think we’d like to see them move more quickly.”
Premier Wen Jiabao’s government has limited the yuan’s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections approaching, U.S. legislators have planned hearings on the topic and may push a bill to let U.S. companies seek tariffs in compensation for an undervalued yuan that makes Chinese goods cheaper overseas.
China tomorrow may say its trade surplus topped $20 billion for a third month in August. Exports exceeded imports by $26.9 billion, according to the median of 34 forecasts in a Bloomberg News survey. By contrast, the U.S. Commerce Department may today report a $47 billion deficit for July, a separate survey showed.
“The deficit number inevitably gives the U.S. Congress more ammunition to vent its frustration at China’s currency stance,” said Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc. “The renminbi issue is becoming increasingly political. As the U.S. mid-term elections approach, we expect heated rhetoric over this issue to escalate further.”
The yuan, a denomination of China’s currency the renminbi, traded at 6.7870 per dollar as of 12:35 p.m. Hong Kong time, compared with the 6.83 peg that authorities maintained from July 2008 until June 2010. Non-deliverable yuan forwards indicate that gains may be limited to about 1.3 percent in 12 months.
Obama administration officials had a chance to communicate frustrations on the yuan this week, when National Economic Council Director Lawrence Summers and Deputy National Security Advisor Thomas Donilon met with President Hu Jintao and others.
Geithner’s assessment of China’s currency stance comes as Japan considers whether to take action to weaken the yen. The currency rose to a 15-year high against the dollar yesterday, prompting Japanese Finance minister Yoshihiko Noda yesterday to pledge “bold action if necessary.” Noda said Japan would use “every option available,” which could include intervention.
The U.S. Treasury chief said he hasn’t yet spoken to Noda. He declined to comment on the prospects for intervention, instead saying that Japanese officials should do what they can to help their economy grow.
Message for Japan
“They’re working through some difficult problems,” Geithner said. “My view is they should be focusing like we are on how to make sure they’re reinforcing recovery in Japan and doing things that are going to help.”
In the U.S., the economy is continuing to heal from the recession and financial crisis, Geithner said. He called on Congress to pass President Barack Obama’s suite of proposals on taxes and economic policy in order to strengthen the recovery.
Obama said yesterday the U.S. can’t afford to extend tax cuts for the wealthiest Americans, continuing an election-year confrontation with Republicans. The White House has endorsed extending cuts passed under former President George W. Bush for those earning less than $200,000 per individual or $250,000 per couple. For those who make more, rates would rise after the end of the year.
Geithner said it would be “irresponsible” to extend the tax cuts for the wealthiest, even temporarily. If those tax cuts were made permanent, Geithner said the estimated $700 billion cost would damage the economy and hurt the country’s long-term prospects.
“It’s not a good use of taxpayers’ money,” Geithner said. “If Republicans think that the economy needs more support, there’s much better ways to do that, including what the president proposed.”
Obama asked Congress to consider $180 billion in economic proposals such as infrastructure spending, research and development tax credits and business investment incentives. Another administration initiative to give $12 billion in tax breaks to small businesses and provide $30 billion to help free up credit to such companies is pending in the Senate.
The economy showed “widespread signs of a deceleration” in mid-July through August, according to a Federal Reserve regional survey released yesterday. The report underscored concern that the economy is slowing, while the recovery remains intact.
Geithner said he doesn’t have any plans to resign after Republicans including Representative John Boehner of Ohio called for his ouster. Geithner said he’d remain Treasury secretary “as long as the president wants me to do it.”
Geithner said he would push international regulators to make sure banks are able to keep lending while they adjust to the tougher capital standards being negotiated this year. The new rules should come with enough of a transition period to avoid creating “headwinds” that could hurt growth, he said.
Regulators and central bankers will meet this month to discuss the next round of capital standards developed by the Basel Committee on Banking Supervision. Leaders from the Group of 20 nations will decide whether to approve the so-called Basel III standards when they meet in November.