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Speed Read: Geithner sharpens criticism of China


Timothy Geithner arrives to testify at a Senate Banking, Housing and Urban Affairs Committee hearing on Thursday.

(Photo Credit: By Jewel Samad/AFP/Getty Images)

At a Senate Banking Committee hearing, Christopher Dodd (D-Conn.) said that "a disturbing pattern of behavior has emerged" with China and urged the Obama Administration to take more aggressive steps against China.

"It is time to move beyond just talking," he said. "We must take action."

In addition to criticizing China for keeping its currency undervalued, Dodd said China violated international trade agreements, unfairly dumped underpriced goods, anticompetitive subsidies and failed to protect intellectual property rights.

"There is no question that the economic and trade policies of China present roadblocks to our recovery," Dodd said.

The sole witness at Thursday's hearing -- the second of a two-day hearing about China's currency -- was U.S. Treasury Secretary Timothy F. Geithner, who signaled in prepared testimony that the administration is prepared to take a tougher stance on China's economic policies.

More to come: Highlights from his testimony.

[W]e are focusing on three core objectives with China: encouraging China to change its growth model to rely more on domestic demand and less on exports; moving toward a more market-determined Chinese exchange rate; and leveling the playing field for U.S. firms, workers, ranchers, farmers, and service providers to trade and compete with China. With China's economy on a strong footing, it is past time for China to move.

We share the concern of the Committee and many of your colleagues about China's exchange rate policy. After allowing the renminbi to appreciate over time against the dollar from mid-2005 through mid-2008, in July 2008, as the financial crisis intensified, China effectively "re-pegged" to the dollar, and there has been essentially no movement of the renminbi against the dollar over the past two-plus years.
China has had to continue to intervene in the exchange markets on a very substantial scale to limit the upward pressure of market forces on the Chinese currency.
Even with the appreciation of the renminbi against the dollar that has taken place since this process began in 2005, China's real trade-weighted exchange rate is now only 4.9 percent stronger than it was on average from 1998-2002, an unjustifiably small change given that China's productivity doubled during that time.
It is the judgment of the IMF that, in view of the very limited movement in the Chinese currency, the rapid pace of productivity and income growth in China relative to its trading partners, the size of its current account surplus, and the substantial level of ongoing intervention in exchange markets to limit the appreciation of the Chinese currency, the renminbi is significantly undervalued. We share that assessment.
[W]e are examining the important question of what mix of tools, those available to the United States as well as multilateral approaches, might help encourage the Chinese authorities to move more quickly.
We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited.

By Ariana Eunjung Cha  |  September 16, 2010; 10:49 AM ET
Categories:  China , U.S. Treasury  
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Next: Data Digest: Mortgage rates remain at record lows


A Newsweek article is typical for the defeatist mood of our intellectuals (Our Best Minds Are Failing Us) - when just a little scientific thinking and attention to experience gives us an answer to our problems. In an electrical machinery, the amount of current flowing through it determines the power produced. In the economy, the critical parameter is the speed of the money circulation. The faster money flows from profit or wages to the bank, to credits, to wages again, etc. the greater is the economic activity. To have more money in a system that is stagnant is of but little help. But it is obvious that the mood of the people and their fears, or conversely their hopes and expectations, are the most important factor that affects the speed of this money circulation.

Nothing will change our expectations more than a change in the political setup. A decisive Republican victory in November with a few new faces would change the picture sufficiently if it is then followed with a drastic relaxation of all hindrances (i.e., regulations that have not worked anyway are useless hindrances in the economy). A drastic tax reform and liberalization would act like a magnet for investors and be like an adrenalin injection in a sluggish body. It has been done before with astonishing results. But we need actions, courageous action and not speeches.

We are doing the opposite from what is needed and drive away investments and the jobs that go with them. One has to know the story of the dead German economy after 1945 and the following economic "miracle". Our own American experience has similar success stories. Of course, the doubters will have all kinds of arguments, but the present situation is unacceptable with the number of capable people who cannot find work and are wasting their time. Why not learn from past experience and ignore the doubters who rather believe their ill conceived ideas which have not helped?

Posted by: gmrwin | September 16, 2010 3:52 PM | Report abuse

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