WASHINGTON — Treasury Secretary Timothy Geithner said Wednesday that China needs to strengthen the "substantially undervalued" yuan because it puts other countries at a competitive disadvantage.
"China's exchange rate needs to strengthen in response to market forces," Geithner said in a speech in Washington at Johns Hopkins University's School of Advanced International Studies. The country's policies "have the effect of keeping the Chinese currency substantially undervalued."
President Barack Obama is due to meet with Chinese President Hu Jintao in Washington on Wednesday as currency policy remains a point of contention between the two governments. Geithner has been urging China to continue to let the yuan, also known as the renminbi, appreciate, and lawmakers in Washington say an undervalued yuan is hurting American manufacturers by making their exports less competitive.
In October, Geithner delayed a twice-yearly report on foreign-exchange policy in which the United States can say whether it is of the opinion that China is manipulating its currency. The yuan has climbed about 3 percent against the dollar since officials in June scrapped a peg that had been in place since the global financial crisis.
"If China does not allow the currency to appreciate more rapidly, it will run the risk of seeing domestic inflation accelerate and face greater risk of a damaging rise in asset prices, both of which will threaten future growth," Geithner said.
Inflation in China accelerated to 5.1 percent in November from a year earlier, the biggest jump in 28 months, driven by higher food costs. In the United States, consumer prices rose 1.1 percent in November from a year earlier.
"China presents enormous economic opportunities for the United States and for the world, but its size, the speed of its ascent, and its policies are a growing source of concern in the United States and in many other countries," he said.
China's policies "impose substantial costs on other emerging markets that run more flexible exchange rates, and as a result have experienced a substantial loss of competitiveness against China," Geithner said.
The Treasury secretary said China "has been gradually moving to address some of our concerns" on issues including trade barriers and intellectual property.