Geithner visits Beijing to cool currency tensions

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BEIJING — U.S. Treasury Secretary Timothy Geithner met with a Chinese vice premier on Thursday and discussed economic ties in a sign the two sides might be trying to cool their rhetoric in a dispute over China’s currency controls.

In a brief statement after their meeting, the Treasury Department did not say whether the two sides discussed currency, and phone calls to China’s Finance Ministry were not answered. But Geithner had been expected to press Washington’s case for Beijing to ease exchange rate controls that critics say distort trade.

Geithner, who stopped in Beijing after a two-day visit to India, left for Washington after the meeting.

The decision to hold such a high-level encounter suggested Washington and Beijing are trying to narrow their differences over currency, which threaten to overshadow cooperation on the global economy, Iran’s nuclear program and other issues.

“The two sides exchanged views on U.S.-China economic relations, the global economic situation and issues relating to the upcoming economic track dialog of the second U.S.-China Strategic and Economic Dialog, to be held in Beijing in late May,” the Treasury statement said.

A Treasury official, speaking on condition of anonymity because of the sensitivity of the discussions, said the meeting lasted 75 minutes and took place in the VIP terminal at Beijing International Airport. The official said the U.S. side was represented by Geithner and David Dollar, Treasury’s economic and financial emissary to China.

A Chinese Foreign Ministry spokeswoman, Jiang Yu, declined before the meeting to elaborate on the agenda, saying only that Vice Premier Wang Qishan and Geithner would “exchange ideas on U.S.-China relations and other issues of mutual interest.”

Critics say Beijing’s controls keep its yuan undervalued, giving its exporters an unfair price advantage and swelling its multibillion-dollar trade surplus. Some American lawmakers want punitive tariffs on imports from China if Beijing fails to act.

The Obama administration delayed a report to Congress due April 15 in which it had the option of citing Beijing as a currency manipulator, a designation that could lead to a World Trade Organization complaint and possible trade sanctions.

Beijing has publicly pushed back against the U.S. pressure, with the Chinese commerce minister warning that a rise in the yuan’s value would hurt exporters, who provide sizable employment. Despite the public intransigence, a debate has also been raging among senior officials and economists about whether to stand firm or let the yuan appreciate.

Economists expect Beijing to allow the yuan to rise as early as the second quarter of this year in order to ease strains in its own economy. A stronger yuan would increase the buying power of Chinese consumers, helping to increase domestic consumption and reducing reliance on exports.

“China can go a lot further in internationalizing its economy and promoting world growth by making its currency more flexible,” said Pieter Bottelier, an economist and former head of the World Bank’s China office. “It is in the interest of the Chinese to resume its policy of pushing toward a more flexible exchange rate, rather than in the interest of the U.S.”

Beijing tied the yuan to the dollar for decades but broke that link in 2005 and allowed it to rise by about 20% through late 2008. The government slammed on the brakes after the international financial crisis hit and has held its currency steady against the dollar to help exporters compete as a plunge in global demand wiped out millions of Chinese factory jobs.

“If China’s currency would appreciate very significantly in a short time it would not be a good thing and it would raise costs for U.S. consumers,” said Xia Bin, director general of the Financial Research Institute of the Development Reform Council, a body affiliated with China’s Cabinet. He advises the government on monetary policy.

Like many Chinese experts, Xia argues that currency changes would not significantly affect trade flows, though he says Beijing should return gradually to the system it had in place after its July 2005 reform.

“We need to pursue an independent currency regime, and I believe in the long-term we will see the exchange rate tend to become more floating,” said Xia.

While the talks Thursday were seen as a positive development, analysts weren’t expecting any significant new agreement to come out of the visit.

“We’d better not be too hopeful for any breakthroughs,” said Niu Jun, professor at Peking University’s School of International Studies. “Economic and trade issues are not like political issues, which can sometimes see sudden progress.”

Niu said the currency dispute was a “long-term issue that requires long-term work.”

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