U.S. Says China, Taiwan Currency Policy Unfair : Trade: Officials say the nations’ exchange rates keep prices of their goods low, widening the deficit.

The Bush Administration on Tuesday accused China and Taiwan of manipulating their exchange rates to gain unfair advantage in international trade.

In a report to Congress, the Treasury Department said Beijing and Taipei artificially depress the value of their currencies, thereby keeping the prices of their products low and inflating their export sales to the United States and other nations.

The result is widening U.S. trade deficits and shrinking U.S. exports to the two nations, officials said.

The charge from the Treasury Department comes as U.S. Trade Representative Carla Anderson Hills is in Taipei seeking to spur Taiwanese purchases of American goods and services.

Her visit is the first to the island by a Cabinet-level official since Washington shifted its recognition of China’s legitimate government to Beijing in 1979.

Beijing has protested the Hills trip, prompting the Administration to announce that Commerce Secretary Barbara H. Franklin will visit the Chinese capital Dec. 16-22.

Officials in Washington said they had not intended to send mixed signals to China and Taiwan, despite appearances--first chiding them for engaging in unfair trade practices, then urging them to expand trade with the United States.

A Treasury official said a 1988 law required the agency to publicly identify nations that manipulate their exchange rates for competitive purposes and run large trade surpluses with the United States. Only China and Taiwan now qualify as offenders, officials said.

The U.S. trade deficit with China for the first nine months of the year is $13.43 billion, second only to Japan at $33.96 billion. The deficit with Taiwan so far this year is $7.62 billion.

“Chinese authorities continue to frustrate effective balance of payments adjustments by tightly regulating exchange markets,” said Olin L. Wethington, assistant Treasury secretary for international affairs. “Given China’s large external surpluses, such regulation is unwarranted.”

Wethington also cited Taiwan for interfering in currency markets to keep the value of the new Taiwan dollar artificially low. “With continued large external surpluses, close to $90 billion in foreign exchange reserves and a high growth rate, this economy doesn’t need rigid, state-imposed foreign exchange restrictions.”

Unlike the United States and other major industrial nations, which allow exchange rates to float with market forces, Taiwan, China and many growing nations regulate currency exchange rates.

A Taiwanese diplomat in Washington denied the currency manipulation charge, saying his government does not control its foreign exchange markets and that the U.S. statement does not reflect the high volume of Taiwanese purchases of U.S. services.

He also said the nation’s foreign exchange reserves are growing because of substantial investment income, not government intervention.

“This is a matter of opinion,” said Albert Ching-Hsiu Lin, a senior Taiwanese representative here. “We don’t agree with them.”

A Chinese Embassy spokesman declined to comment because he had not yet seen the Treasury Department report. But Beijing in the past has denied that it manipulates the value of the yuan.

Both China and Taiwan have been cited before for foreign exchange improprieties. The law authorizes the Administration to impose trade sanctions to protest currency distortions but until now officials have chosen talk rather than penalties.

James H. Fall III, a Treasury deputy assistant secretary, is in Taiwan to negotiate ways to correct the problems, officials said. Talks with Beijing will continue, they added.