WASHINGTON (AP) — China's currency is substantially undervalued and Beijing is moving too slowly to fulfill its promise to let it rise, Treasury Secretary Timothy Geithner said Wednesday.
Geithner said it's in China's own interests to accelerate the pace of currency reform. He said the undervalued yuan is increasing the risk of inflation that will harm Chinese growth.
Geithner's comments came in a speech previewing the administration's policy positions in advance of Chinese President Hu Jintao visit to Washington next week.
Economic tensions have been rising between the world's two largest economies at a time when America's trade deficit with China has ballooned and its unemployment rate remains high.
American manufacturers contend that China's yuan currency is undervalued by as much as 40 percent. This gives China a tremendous competitive advantage because it makes Chinese products cheaper in America and U.S. goods more expensive in China.
China in June pledged to allow more flexibility in its currency. But Geithner said that since that time the yuan has risen in value against the dollar by only about 3 percent.
China's undervalued currency imposes costs not only on U.S. companies but on other countries that have more flexible exchange rates, Geithner said.
"This is not a tenable policy for China or for the world economy," Geithner said. "We believe it is in China's interests to allow the currency to appreciate more rapidly in response to market forces. And we believe that China will do so because the alternative will be too costly — for China and for China's relations with the rest of the world."
Last September, the U.S. House of Representatives passed legislation that would impose economic sanctions on China unless the country allowed its currency to rise more quickly. The measure was not taken up in the Senate.