Treasury Secretary Timothy Geithner, delivering his sharpest criticism of China's exchange rate policies in months, said on Thursday the yuan's value was critically important for the world economy.
But Geithner, testifying before the U.S. Senate Finance Committee, confessed that he didn't know when China would allow the yuan to rise again.
I, to be honest, do not know, whether we're at the point now when we're going to see meaningful progress in the near term, Geithner said.
The U.S. Treasury chief said Beijing's shackling of the yuan to the dollar for the past two years was causing other Asian countries to intervene in foreign exchange markets at record levels.
The distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need, Geithner said. A more flexible RMB (yuan) will allow market forces to play a more active role over time in facilitating strong, balanced and sustainable growth globally.
Geithner's remarks struck a more critical tone than he has used for the past two months, and were made at a hearing attended by a number of senators who have proposed punitive trade legislation aimed at China.
The U.S. Treasury secretary since early April had taken a softer approach toward China, delaying a much-anticipated report on whether Beijing manipulates the value of its yuan.
Instead, Geithner, who said the decision was the right thing to do, chose to wait for a series of international meetings, including U.S.-China bilateral talks in Beijing at the end of May, and a Group of 20 leaders summit in Toronto later this month.
Lawmakers have become increasingly impatient with the lack of movement and have called for a tougher line on the yuan. China had allowed the yuan to rise gradually from mid-2005 to mid-2008, but had kept it unchanged since then, when the financial crisis worsened.
America can no longer afford to be complacent. We no longer have the luxury of pursuing failed approaches, said Senate Finance Committee Chairman Max Baucus, a Montana Democrat. We must rethink the U.S.-China economic relationship. We must act, not just talk.
CHINA EXPORTS JUMP
But new Chinese data released on Thursday showed a big jump in exports in May, putting pressure on President Barack Obama to placate critics.
In his testimony, Geithner said the Obama administration wanted China to change policies that disadvantage American companies and to provide a more level playing field for U.S. products and investments.
He vowed the administration would apply forcefully all remedies available under U.S. law to curb China's unfair trade practices, including anti-dumping and countervailing duty complaints.
But, echoing a refrain he has used since April, he said Beijing would find it in its own interest to have a more flexible yuan, also known as the renminbi.
A stronger renminbi would benefit China because it would boost the purchasing power of households and encourage firms to shift production for domestic demand, rather than for export, he said. A more market-determined exchange rate also means that China will be able to pursue a more effective, independent monetary policy, which is particularly important now, with China's economy facing a risk of inflation in goods and in asset prices.
(Reporting by David Lawder, Editing by Chizu Nomiyama)