Wednesday, December 3, 2008

Treasury Secretary Henry M. Paulson Jr. said Tuesday that China must continue allowing its currency to rise in value against the dollar as part of reforms to address trade tensions with the United States.

Mr. Paulson praised the Chinese for allowing their currency to rise in value by more than 20 percent against the dollar since July 2005, but said it’s critical that currency reform process be allowed to continue.

American manufacturers contend that undervalued Chinese currency puts them at a competitive disadvantage and is a key reason for the huge trade gap between the two countries.

In trading Tuesday, the Chinese yuan fell to its lowest against the U.S. dollar in more than five months, increasing worries that the Chinese may allow their currency to weaken against the dollar during the current global slowdown as a way to support their own manufacturing industries.

Mr. Paulson did not specifically mention recent movements in the yuan, but said it was important that China not falter in its push to reform its currency as a way of relying more on domestic demand to support Chinese economic growth instead of exports.

“Making this shift will take bold leadership and decisive structural reforms to boost demand among households,” Mr. Paulson said in a speech previewing his upcoming trip to China. “As I have said in the past, continued reform of China’s exchange rate policies is an integral part of this broader reform process.”

The U.S. and other major trading partners have long complained that the yuan is undervalued.

American manufacturers contend that the yuan is undervalued by as much as 40 percent even with its increase in value since the summer of 2005. They argue that the Chinese government is manipulating the yuan’s value to gain unfair trade advantages against U.S. companies.

A cheaper yuan makes Chinese goods less expensive for American consumers, and U.S. products more expensive in China.

Mr. Paulson later this week will lead a high-level Cabinet delegation to Beijing for two days of talks with their counterparts from the Chinese government in what will be the fifth round of the Strategic Economic Dialogue.

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