Davos: China is keeping its currency below its fair value and it represents a "formidable challenge" to the global trading system, US Treasury Secretary Timothy Geithner said on Friday. Sharply criticising the Communist giant's state-led economic system, Geithner said, "China does represent a really unique and formidable challenge to the global trading system because the structure of its economy... is overwhelmingly dominated by the state."
Chinese trade practices, including subsidies for state-owned industries and distorted prices for energy, capital and land have been "damaging" to trade partners, he told the World Economic Forum in Davos.
Beijing had built its manufacturing sector at the expense of its trading partners through "systematically subsidising" costs of key imports as well as by keeping "its exchange rate below fundamentals for some time, though it is appreciating gradually", Geithner said.
Those policies are "very damaging to not just their commercial economic trading partners but also for the sustainable world trading system."
He also said China wants to be part of the solution to Iran's nuclear programme and that it isn't in Beijing's interest to disrupt the balance of power in the Middle East.
He said America's efforts to cut Iran's oil exports was getting good support from Europe and that there were positive signs from China too.
"I am actually quite encouraged by the extent of support we are getting from Europe" on Iran issue and major emerging economies like China now want to part of this effort.
"Even over the last 6 months you're seeing a substantial intensification in (cutting) dependence on Iranian oil and my sense is also that China wants to be part of that effort because it is in China's interests not to see Iran undo the delicate balance in the Gulf," he added.
International Monetary Fund (IMF) could help support Europe through its debt crisis if the euro zone boosts its bailout funds, or "firewall", he said.
"Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall and that is going to demand a bigger commitment," he said.
"If Europe is able and willing to do that we believe the IMF is ready to play a constructive role," he added. "I think you'll see the IMF (be) very supportive in those efforts but not as a substitute for blocks to resolve the sovereign debt crisis (that) are gradually fitting into place.
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