U.S. Treasury Secretary Henry Paulson, sharpening his tone on Chinese currency policy, said on Thursday that there was a mounting need for Beijing to let its yuan rise in value.
Speaking to the President's Export Council, an advisory group, Paulson implied that China has too tightly restrained the value if its yuan, also called the renmimbi, since it was freed from its peg to the dollar in July 2001 and revalued by 2.1%.
"The renminbi has moved about 8.2% against the dollar since July 2005," he said. "The Chinese have recognized the principle of flexibility but when you look at the deficits and what reserves China has and the trade balance, there's really more need to move the renminbi now than there was in July 2005 if you look at it on a trade-weighted basis."
The U.S. trade deficit with China hit a record $233 billion last year, while Beijing has accumulated dollar reserves of more than $1 trillion as it buys the U.S. currency to keep the yuan's value from rising more rapidly than it has done.
Paulson was speaking to the advisory group about the recently concluded second session of the "strategic economic dialogue" between the United States and China, which was held in Washington May 22-24.
He said U.S. officials repeatedly have told Beijing it faces greater risk from moving too slowly in letting its yuan rise in value, as both American and European competitors, flooded with cheap Chinese imports, say must happen.
"We emphasize to the Chinese it is in their best interests to move. They're not going to get where they need to get unless they move," Paulson said.
He said China was "largely integrated into the global economy in terms of goods and services but they're not integrated into the capital markets or securities markets in terms of their currency."
Paulson's remarks could foreshadow language in a delayed report on foreign currency practices of key trade partners, which will be published by the Treasury soon and may have a bearing on Congressional proposals to ramp up legislative pressure against China.
The semi-annual report to Congress was due in April but was delayed until after last month's discussions with Chinese officials, which were widely seen as inconclusive although the Chinese officials did meet members of Congress face-to-face and heard their complaints about China's currency policy.
The last Treasury report on foreign exchange policy in December declined to name China a "currency manipulator."
That angered many members of Congress and helped fuel a drive for legislation that would enable the imposition of duties on Chinese imports to offset what many lawmakers claim is an unfair 15% to 40% price advantage derived from an undervalued Chinese currency.