China's 'Undervalued' Yuan

China's 100 yuan, or renminbi, notes, the largest denomination in Chinese currency. (Frederic J. Brown/AFP/Getty Images)

NEW YORK, July 9, 2010 - The US Treasury has so far refrained from declaring China a "currency manipulator," but Asia Society's Jamie Metzl says the US Congress is likely to respond strongly if Beijing does not do more to allow the currency's value to appreciate.

The Treasury said on Thursday in its latest currency report that the yuan was "undervalued," but it declined to go further.

Metzl, Asia Society's Executive Vice President, on Friday defended such caution, saying the United States would have had "a hard time going whole hog by calling China a 'currency manipulator' when China made some preliminary steps ... (by) delinking to the dollar."

"At the same time we have not seen the appreciation that at least everybody here thinks is appropriate," he told Bloomberg TV.

Metzl said Treasury Secretary Timothy Geithner "is in a very, very difficult position, because if he goes and says China is a currency manipulator ... it would start a whole political process that would be difficult to rein in.

"China recognizes this, which is why, at every stage, they do the absolute minimum to try to change the political environment.

"One week before the G-20 meeting in Canada they came out and said ‘we are going to delink.' It was the least amount possible at the last possible moment.

"Now there is this beginning of change.  Geithner I think has done the right thing now. But in six months, if there isn't any kind of meaningful change, I think, the Chinese and everybody else can expect a much stronger response from the US Congress."

Metzl said the change in the yuan's value since the pre-G20 announcement had been miniscule and that many in the United States believe it would "strengthen considerably" if it were allowed to float.

Metzl said the United States is right to keep pushing Beijing on the currency issue.

"It is a two-way relationship. The United States obviously needs China for many things," he said.

"China absolutely needs the United States, probably even more than the United States needs China at this point. That might change at some point in the future ... For the United States, President Obama said in his State of the Union address that we are going to double exports in five years. How are we going to do that with the Chinese currency as undervalued as it is?"

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