Obama's Geithner: China manipulates Yuan

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Obama Deems China ‘Manipulating’ Yuan, Geithner Says (Update2)
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By Rebecca Christie

Jan. 22 (Bloomberg) -- Timothy Geithner, PresidentBarack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is “manipulating” its currency.

Geithner also said, in written responses to questions from Senate Finance Committee members, that there are “no current plans” to request more financial bailout funds. He played down any need to nationalize U.S. banks, without specifically ruling out the option.

The remarks on China’s exchange rate policy may presage a tougher American line with the nation that is the biggest foreign investor in U.S. government debt. Former Treasury Secretary Henry Paulson preferred diplomacy over confrontation with China to resolve trade disputes and, in semiannual reports, refrained from labeling the country an illegal “manipulator” of its currency.

“President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency,” Geithner said in the remarks, which were posted on the Senate Finance Committee Web site today. “The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”

Characterizing China’s policy as manipulation is “a very substantial change” by the Obama administration, said Nicholas Lardy, an economist who specializes in China at the Peterson Institute for International Economics in Washington.

‘Bent Over Backwards’
“It’s certainly something the Bush administration bent over backwards to avoid,” Lardy said. “It sounds also like he’s giving himself a little bit of wiggle room, saying we’ll take it up when we think it’ll be most effective” and not necessarily as an immediate issue.

Geithner said that in the short term, China should pursue “more aggressive” efforts to boost economic growth, in concert with a similar U.S. economic stimulus package.

The finance panel is expected to vote on Geithner’s nomination today.

The Obama administration is continuing to weigh a proposal to spur home buying by driving down mortgage rates, he said.

“The primary objective of the proposal to provide 4.5 percent mortgages is to assure that affordable mortgages are available to qualified borrowers,” Geithner said. “We share the objective and will continue examining proposals aimed at increasing the flow of credit to qualified borrowers.”

One version of the proposal would use Fannie Mae and Freddie Mac, the federal-chartered mortgage finance companies seized by the government in September, to reduce 30-year fixed home-loan rates to around 4.5 percent, from a current average of about 4.96 percent.

To contact the reporter on this story: Rebecca Christie in Washington atRchristie4@bloomberg.net;Last Updated: January 22, 2009 11:05 EST