* China official rejects currency complaints
* Geithner says yuan appreciation important
* Key lawmaker talking to Treasury on yuan
* China"s "indigenous innovation" scheme raised (Adds Geithner quotes, details)
By Doug Palmer and Paul Eckert
WASHINGTON, March 24 (Reuters) - A Chinese official said onWednesday China would reform its currency policy gradually andkeep the exchange rate stable, rejecting mounting U.S. calls toallow the yuan to rise more quickly.
Chinese Vice Commerce Minister Zhong Shan, in Washingtonamid U.S.-China trade and political tensions, said changing theexchange rate was not the way to fix a huge bilateral trade gapand could upset the world economy.
"Revaluing the renminbi is not a good recipe for solvingproblems," he told the U.S. Chamber of Commerce, according to atranscript obtained by Reuters.
"It is in nobody"s interest, China"s, the U.S." or othercountries", to see big ups in the renminbi or big downs in thedollar," Zhong said.
U.S. Treasury Secretary Timothy Geithner said it wascritical for China to allow its currency to rise. "We can"tforce them to make that change," he said in an interview withCNN.
"But it is very important that they let it start toappreciate again. And I think many of them understand that," hesaid, according to an advance transcript provided by CNN.
Many U.S. economists estimate China"s currency isundervalued by up to 40 percent. They say that gives China anunfair price advantage in international trade, takes jobs awayfrom other countries and adds to global financial distortions.
With the U.S. economy having shed 8.4 million jobs sinceDecember 2007, lawmakers have focused on China"s currency.Senators are crafting a law that would slap import duties onChinese goods to offset the low value of its currency.
Sponsors of the bill, Democratic Senator Charles Schumerand Republican Senator Lindsey Graham, also want the Obamaadministration to formally label China a currency manipulatorin a semi-annual Treasury Department report due on April 15.
"VIGOROUS DISCUSSIONS" WITH TREASURY
The administration twice rejected that route in 2009, asdid the Bush administration. Wary of straining U.S.-Chinarelations, Obama has instead pressed Beijing to move to a "moremarket-oriented exchange rate."
U.S. House Ways and Means Committee Chairman Sander Levin,an influential Democratic Party lawmaker, kept up the chorus ofcriticism of Beijing"s currency policies on Wednesday.
"What seems undisputed ... is that China has a persistenteconomic strategy, a policy, key to which is the pegging of itscurrency to the dollar at an undervalued rate," he said.
Levin said he intended to hold "some vigorous discussionsthis week" with Treasury officials on the currency issue.
Declaring China a currency manipulator would requireGeithner to hold talks with China, bilaterally or at theInternational Monetary Fund. The IMF called the yuan"substantially undervalued" on March 1.
Niall Ferguson, a history and business professor at HarvardUniversity, told Levin"s hearing that failing to name China asa manipulator will make the United States "look like the wimpsof the Western world."
Many economists say a revaluation of the yuan would notbring back U.S. jobs because many of the labor-intensiveproducts Americans buy from China have not been made in theUnited States for decades.
Some warn against moves that would trigger a trade war withChina, which holds $889 billion of U.S. government bonds andwhose help is needed to tame the nuclear ambitions of Iran.
Joseph Brusuelas, chief economist at Brusuelas Analytics,said in a research report that he saw "little questionregarding whether Beijing targets the level of its currency."But he argues against naming China a manipulator.
"Such a finding will exacerbate economic tensions betweenthe U.S.-China and could push the Obama administration to adopta counterproductive set of policies that would endanger thenascent global economic recovery," he wrote.
Ferguson urged naming China a manipulator but, citing theU.S. tariffs that helped trigger the 1930s Great Depression,added: "I do not think this is a good moment to threaten orimpose retaliatory tariffs against China."
"INDIGENOUS INNOVATION" CONCERNS
Zhong warned U.S. business leaders that a stronger yuanmight not be a solution to American economic problems.
"A dip in the value of dollar will undoubtedly bring greatrepercussions to the global financial system and the worldeconomy," he told the U.S. Chamber of Commerce.
"The right way to reach trade balance between China and theU.S. should be expanding exports from the U.S. to China, ratherthan limiting China"s exports to the U.S.," Zhong added.
U.S. exports to China hit about $70 billion in 2009,unchanged from 2008. In a global economic slowdown, China wasthe third-biggest market for U.S. exporters and it remains thefastest-growing one.
But U.S. business leaders increasingly complain they arehitting a protectionist wall in China as a result of governmentpolicies favoring domestic industries and that Beijing isincreasing state involvement in the economy.
"Regrettably, China is moving in a direction that isinconsistent with international best practice in developing aninnovative economy," said Myron Brilliant, senior vicepresident of the U.S. Chamber of Commerce.
China"s policies are undermining business leaders who havelong defended Beijing from U.S. protectionist pressures.
"The ongoing policy approaches by China are eroding thesupport of their long-standing advocates in the United States,diminishing the many good arguments we have used historicallyin support of this relationship," Brilliant said.
China and the United States have been at odds throughout2010 -- over issues such as Google"s (GOOG.O) decision to defyChinese Internet censorship, U.S. weapons sales to Taiwan,Tibet and sanctions against Iran"s nuclear program.
Zhong also visited the U.S. Treasury Department, CommerceDepartment and the Trade Representative"s office. It was notclear whether he would meet lawmakers during his two-dayvisit.
A Commerce Department official said U.S. officials whohosted Zhong discussed trade remedy issues, anti-dumpingand countervailing duties.
"We also took the opportunity to raise our broadertrade-related concerns, such as indigenous innovation," shesaid, referring to Beijing"s buy-Chinese directives that U.S.businesses in China cite as a major and growing trade barrier. (Writing by Paul Eckert; Editing by Andrew Hay and DanGrebler)
Currencies
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