The China currency manipulation comment by the US Treasury Secretary-designate Timothy Geithner has sparked worries that China would face increasing pressure from US trade protectionism, Chinese economists said.

"This is the first comment made by the Obama administration on Sino-US economic ties," said Cao Honghui, a researcher with the Institute of Finance under the Chinese Academy of Social Sciences (CASS). Its undoubtedly a signal of more frictions on trade and currency issues between the two nations, he said.

"President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency," Geithner wrote to the Senate Finance Committee in documents released on Thursday.

He also said that Obama has pledged as president "to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices."

The US has long held that China is purposely keeping its currency, the renminbi, devalued against the dollar to help exports, which injured the interests of US enterprises.

However, the Bush administration did not officially label China as a "currency manipulator" in its currency policy reports.

"The Obama administration is worrying about China's reducing holdings of US treasury bonds while maintaining a trade surplus with the US," Cao said.

According to China customs statistics, Sino-US trade hit US$333.74 billion last year, up 10.5 percent year on year.

China's trade surplus with the US increased 4.6 percent in 2008 from a year earlier to US$170.85 billion. The growth, however, was 8.6 percentage points lower than 2007.

Geithner's comment was just a "cliche", aiming to try out the Chinese government's response, said Zuo Xiaolei, senior analyst with the Beijing-based Galaxy Securities.

The move was within expectation, Zuo said, as "the new Obama administration is facing serious job losses and economic recession while the Democrats have tended to trade protectionism."

The US unemployment rate hit a 16-year high of 7.2 percent in December, according to the governmental statistics.

The US federal budget deficit totaled US$485.2 billion in the first three months of the current fiscal year, the highest on record for a first quarter and larger than the record for a full fiscal year of US$455 billion set last year, said the US Treasury Department.

"US trade protectionism has become the top concern of the international community," Zuo said, "because Obama has not mentioned being against trade protectionism during his presidential campaign and the inaugural speech, plus the persistent tendency of the Democrats."

It would hurt the concerted action of fighting the global financial crisis if the US labeled China as a "currency manipulator", said Yi Xianrong, a researcher with the financial research center of the CASS.

It would also hamper the global efforts to shake off an economic slowdown as the Sino-US economic tie had become one of the world's most important bilateral economic ties, Yi said.

With a 9-percent rate, China contributed more than 20 percent of global economic growth in 2008, while the US remained the world's largest economy, he said.

"The question is how and when to broach the subject in order to do more good than harm," Geithner said in his written answers.

The Obama administration looks forward to a productive economic dialogue with the Chinese government on a number of short- and long-term issues, said Geithner, and "the yuan is certainly an important piece of that discussion."

However, "given the crisis, the immediate focus needs to be on the broader issue of stabilizing domestic demand in China and the US," he said.

According to Mei Xinyu, a researcher at China's Ministry of Commerce, Geithner's accusation of currency manipulation was to "suit the fancy of the US Senate" as he needed Senate approval for his official nomination.

On Thursday, the Senate Finance Committee endorsed Geithner as the US treasury secretary. The nomination was expected to win approval by the full Senate next week.

China should not care too much about the currency manipulation comment, and carry on its reform of formation mechanism of renminbi exchange rates, Mei said.

In July 2005, China abandoned a decade-old peg to the US dollar and allowed its currency to appreciate by 2.1 percent. Since then, the yuan has strengthened further, mostly slowly, and risen more than 20 percent against the US dollar.

Yuan appreciation and the pace of appreciation should not only be decided by trade surplus but also the status of domestic economic development, Zuo said.

"The price advantage of Chinese exports may not be a result of currency issues, but the country's lower costs of labor, resources and land," she said.

Xinhua learnt that the People's Bank of China, the central bank, was preparing for a response on Geithner's comment.

(Xinhua News Agency January 25, 2009)