China hits back at U.S. in currency row

By Chris Buckley

BEIJING (Reuters) - China's central bank on Saturday said U.S. accusations that it was manipulating the yuan currency were misleading, a day after Beijing cautioned incoming Secretary of State Hillary Clinton to handle their ties with care.

The remarks from Su Ning, a vice governor of the People's Bank of China, were the bank's first public reaction to comments from U.S. Treasury Secretary-designate Timothy Geithner, who said this week that Beijing was manipulating its currency exchange policies to gain an unfair trade advantage.

"These comments are not only out of keeping with the facts, even more so they are misleading in analyzing the causes of the financial crisis," Su said of Geithner's comments to the Senate Finance Committee, according to the official Xinhua news agency.

The exchange marks a testy start to ties between Beijing and the Obama administration, which may tarnish vows of cooperation in combating the global economic slowdown and security threats.

"China wants a good start with Obama, but trade conflicts are the one issue most likely to hurt this," said Shi Yinhong, an expert on ties between the two nations at Renmin University in Beijing. "Now our diplomacy is conditioned by the financial crisis."

China worries that its already slowing exports will be even harder hit by U.S. policies to narrow their trade imbalance.

Many U.S. lawmakers believe the yuan is much undervalued, giving Chinese exporters a big advantage that they blame for U.S. job losses and the U.S. trade deficit, which hit a record $256.3 billion in 2007.

Su did not directly accuse Geithner of trade protectionism. But the Chinese official's warning was clear enough.