US presses China for stronger currency as economy talks open amid tussle over activist

BEIJING, China – U.S. Treasury Secretary Timothy Geithner urged Beijing to let its tightly controlled currency strengthen and improve market access amid trade strains at a high-level economic dialogue Thursday.

Beijing has allowed the yuan to rise gradually but Washington and other trading partners complain it still is undervalued, giving Chinese exporters an unfair advantage and hurting foreign competitors. Some American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act faster.

This week’s talks, overshadowed by a diplomatic tussle over a blind Chinese legal activist, come as a weak global economy and pressure on governments of developed countries to reduce unemployment are fueling trade complaints against China.

Washington considers “particularly important” the promise of a stronger yuan in China’s latest five-year economic development plan, Geithner said in prepared remarks for the opening of the two days of talks.

In more pointed language last month, Geithner complained an undervalued yuan was a source of “unfair competition.” He called for a “stronger, more market-determined” exchange rate and said that would help the global economy.

Chinese officials have said that future gains by the yuan are likely to be limited, setting up a possible clash with Washington. Premier Wen Jiabao said in March the currency might have reached an “equilibrium exchange rate.”

Washington welcomes Beijing’s move last month to widen the daily trading band within which the yuan is allowed to fluctuate from 0.5 per cent to 1 per cent but thinks it fails to go far enough to create a market-driven exchange rate, according to a senior administration official with Geithner’s delegation.

U.S. officials also pressed China to create a more “level playing field” for foreign companies by removing import barriers, said the official, who briefed reporters about the talks on condition of anonymity.

The United States reported its trade deficit with China reached an all-time high of $295.5 billion last year, up 8.2 per cent from 2010’s previous record.

The U.S. Commerce Department announced last month it would impose new import fees on Chinese-made solar panels after concluding manufacturers received improper subsidies. Chinese authorities announced their own probe in November into whether U.S. support for renewable energy companies hurts foreign suppliers.

China’s envoy to the economic talks, Vice Premier Wang Qishan, called on Washington to ease controls on exports of high-tech goods. Such controls are imposed on “dual-use” goods such as supercomputers with possible military applications.

Talks were continuing on loosening export restrictions and smoothing the way for more Chinese investment in the United States, according to the U.S. official.

“The global economic recovery remains sluggish and the situation is grim and complicated,” Wang said.

“We must continue to enhance co-ordination of macro-economic policies, work together to meet global challenges, and ensure economic growth and job creation in both our countries so as to contribute to a strong and sustainable recovery of the world economy.”

Wang called for more U.S. co-operation with Chinese companies on building highways, ports and other infrastructure. China’s construction companies have built dams, roads and bridges in Africa and developing Asian countries and say they want to expand into European and U.S. markets.

Geithner expressed support for China’s plans to overhaul its financial system to increase support for private enterprise and reduce special treatment for state-owned companies. He said the plans reflect Beijing’s recognition that it has to rely more on private sector innovation and allow more competition from foreign companies.

“The United States has a strong interest in the success of these reforms,” he said.

In his speech last month in San Francisco, Geithner complained Beijing’s support for state industry with low-cost loans, land and resources “hurts U.S. companies and workers who compete with these firms.”