US Treasury Secretary Tim Geithner calls on China to strengthen yuan

US Treasury Secretary Tim Geithner has gone on the offensive over China's attempts to devalue its currency.

Ahead of next week’s visit to Washington by Hu Jintao, China's president, Mr Geithner said the Eastern (EML - news) country needs to strengthen the “substantially undervalued” yuan because it puts other countries at a competitive disadvantage.

The yuan has climbed about 3pc against the dollar since officials in June scrapped a peg which had been in place since the global financial crisis.

Taking inflation into account, the yuan is rising at a rate of about 10 percent a year, “so if that appreciation was sustained over time, it would make a very substantial difference”, he added.

Mr Geithner warned that China faces inflation problems that are of global concern. Inflation accelerated to 5.1pc in November (Berlin: NBXB.BE - news) from a year earlier, the biggest jump in 28 months, driven by higher food costs.

“China presents enormous economic opportunities for the United States and for the world, but its size, the speed of its ascent, and its policies are a growing source of concern in the United States and in many other countries,” he said.

The Treasury Secretary also said China “has been gradually moving to address some of our concerns” on issues including trade barriers and intellectual property. The world needed “a more level playing field for US companies that compete with Chinese companies in China, in the United States, and around the world,” he added.

Mr Geithner also said he has “no doubt” that Europe (news) “has the ability” to stop its sovereign debt crisis from spreading, calling it one of the “most obvious remaining challenges” to the global economic recovery.

“If China does not allow the currency to appreciate more

rapidly, it will run the risk of seeing domestic inflation

accelerate and face greater risk of a damaging rise in asset

prices, both of which will threaten future growth,” Geithner

said.

European Crisis

y in response to a question after his

speech. “They will do whatever is necessary to prevent this

crisis from escalating beyond the countries that were initially

the focus of so much pressure.”

China’s policies “impose substantial costs on other

emerging markets that run more flexible exchange rates, and as a

result have experienced a substantial loss of competitiveness

against China,” Geithner said.

Geithner, 49, was

speaking at Johns Hopkins University’s School of Advanced

International Studies in Washington.

China will increase currency flexibility this year to cut

the trade surplus and reduce inflationary pressure, central bank

Deputy Governor Yi Gang wrote in a commentary published in the

official China Forex magazine Jan. 10.