Geithner's subtle dig at China

NEW YORK (CNNMoney) -- The push to get China to allow its currency to appreciate continued Monday, with Treasury Secretary Tim Geithner raising the issue in Brazil.

Speaking in Sao Paulo ahead of President Obama's visit next month, Geithner said Brazil is being helped and hindered by "the policies of other emerging economies that are trying to sustain undervalued currencies."

While Geithner did not mention China specifically, it seems clear that his comments were directed at Beijing.

Geithner said the "surge" of capital into Brazil is being driven by strong economic growth and attractive investment opportunities there. But he added that the flood of cash is being "magnified" by economies "with tightly controlled exchange rate regimes."

"Brazil and other emerging economies with flexible exchange rates and open capital markets have born a disproportionate share of both the benefits and burdens of these capital flows," the Treasury Secretary said.

China has long been criticized by the United States for intervening in the currency market to depress the value of its currency, the yuan. This policy, critics say, gives Chinese exporters an unfair advantage and has created global trade imbalances.

But the Treasury Department, which released its semiannual report on international economic and exchange rate policies last week, has so far avoided the undiplomatic step of officially labeling China a "currency manipulator."

Instead, the U.S. has argued that currency appreciation is in China's own best interest, since it would help cool inflation in the world's fastest growing economy.

"It is in China's interest to allow the nominal exchange rate to appreciate more rapidly," according to the Treasury's report. "If it does not, China will face the risk of more rapid inflation, excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth."

To be sure, China has allowed the yuan to appreciate somewhat. As of late January, the yuan has risen 3.7% against the dollar since the Chinese government loosened its peg in June, according to the Treasury Department.

Chinese president Hu Jintao was in Washington last month for talks with U.S. president Barack Obama. The two leaders stressed the need for cooperation to ensure mutual growth, but the currency issue was largely sidelined.

Geithner's remarks Monday suggest that the U.S. is looking to enlist other nations to press China on its currency policies, according to Shang-Jin Wei, a professor at Columbia Business School.

"The Secretary's comment is part of a U.S. government effort to mobilize other countries, especially other emerging markets to put pressure on China," he said.

But the argument that China's currency is "substantially undervalued" is not founded, and the idea that other emerging economies are hurt by China's economic growth is "oversold," according to professor Wei.

"Brazil and many countries in Latin America have done relatively well in the last few years in part because of the strong growth in China and a strong demand by China for their exports," he said.

Still, even some policymakers in China recognize the need for a stronger currency to deal with inflation, said Tu Packard, a senior economist at Moody's Analytics.

But that camp is being stymied by other interests in China, including exporters, provincial governments and powerful state-owned enterprises, she said.

"I think the problem is that China isn't unified on this subject," she said. "That's why it's been slower."