China undervalues its currency in order to gain competitive advantage around the world. Everyone understands that and it needs to change, but the question in the United State is how to effectively change it. The Obama administration is taking the gradual approach:

The Obama administration on Tuesday declined to label China a currency manipulator after seeing recent increases in the value of the yuan compared to the dollar.

The decision angered some manufacturing groups, which have accused Beijing of artificially holding down the value of its currency to gain trade advantages. A cheaper yuan makes Chinese goods less expensive when they are shipped to the United States. It also makes U.S. goods more expensive in China. Both could increase the U.S. trade deficit with China, which is on pace to hit a record high this year.

The Treasury Department said the yuan has appreciated 12 percent against the dollar in the past 18 months, after adjusting for inflation. In addition, the department said in a semi-annual report that China promised at two high-level meetings last month to make the yuan’s exchange rate more flexible.

Still, yuan is “substantially undervalued” and its appreciation “is insufficient and more progress is needed,” the report noted. The department will “press for policy changes that yield greater exchange rate flexibility” and “level the playing field.”

This will likely end up being a campaign issue as Mitt Romney and other GOP candidates are hammering Obama over China. But progress is being made.

Tom Friedman writes often about China, and his latest column addresses current hot issues like currency valuation, manufacturing and trade. But this paragraph grabbed my attention:

But we also need to stop thinking that a middle class can be sustained only by factory jobs. Thirty years ago, Hong Kong was a manufacturing center. Now its economy is 97 percent services. It has adjusted so well that this year the Hong Kong government is giving a bonus of $775 to each of its residents. One reason is that Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors — 23 million from China. Their hotel stays, dining and jewelry purchases are driving prosperity here. The U.S. Commerce Department says 801,000 Mainland Chinese visited the U.S. last year, adding $5 billion to the U.S. economy. More Chinese want to come, but, for security reasons, visas are hard to obtain. If we let in as many Chinese tourists as Hong Kong, it would inject more than $115 billion into what is a highly unionized U.S. hotel, restaurant, gaming and tourism industry.

The United States needs to get beyond some of the over-zealous security restrictions imposed after 9/11 and let as many Chinese and other tourists come visit as possible. Tourism has helped to sustain Europe for years, and the U.S. needs to take advantage of this as well.

The photo above has Bob Dylan in at the Worker’s Gymnasium in Beijing on April 6th, but there was a ton of controversy relating to his concerts in China. Dylan recently came out with a scathing statement denying that there was any censorship of his songs or lyrics during his performances.

Many are interpreting this move as another push by the Obama administration to push China on trade.

President Barack Obama has chosen Commerce Secretary Gary Locke to succeed Jon Huntsman as U.S. ambassador to China – signaling a more focused White House effort to press Asia’s emerging economic superpower on trade issues, according to administration officials.

Obama could make the announcement as soon as Tuesday, a senior administration official said, adding that the president has yet to settle on a list of possible replacements for Locke, a former two-term governor of Washington. Locke’s departure from the cabinet had long been rumored.

Locke, 51, is a third generation Chinese-American with roots in Hong Kong and China’s coastal Guangdong province – and the first person of Chinese ancestry to serve as a U.S. governor. He is fluent in Cantonese and didn’t speak English until he was five years old.

This will be a huge campaign issue, and any progress will help the Obama administration. It will be interesting to see how the Chinese respond.

It’s important to make several qualifications. First, Americans shouldn’t blame China for all our economic problems, which are mostly homegrown. Indeed, the ferocity of the financial crisis discredited U.S. economic leadership and emboldened China to pursue its narrow interests more aggressively than ever. Second, the point should not be (as Chinese allege) to “contain” China’s growth; the point should be to modify its economic strategy, which is predatory. It comes at others’ expense.

The U.S. response has been mostly carrots — to pretend that sweet reason will convince China to alter its policies. Last week, Presidents Obama and Hu exchanged largely meaningless pledges of “cooperation.” Alan Tonelson of the U.S. Business and Industry Council, a group of manufacturers, says U.S. policy verges on “appeasement.” We need sticks. The practical difficulty is being tougher without triggering a trade war that weakens the global recovery. Still, it’s possible to do something. The Treasury could brand China a currency manipulator, which it clearly is. The administration could move more forcefully against Chinese subsidies. America’s present passivity encourages China’s new world order, with fateful consequences for the United States and everyone else.

I think the current administration is in a bind, as the economic crisis has made it much more difficult to take a hard line with China and risk a trade war. Perhaps President Obama can reset the relationship and alter China’s behavior. If not, he will soon need to get tough with them.

U.S. prosecutors, empowered by the Foreign Corrupt Practices Act of 1977 (FCPA) to investigate allegations of bribery anywhere in the world, have been stepping up their activities in China, where a tradition of gift-giving in business often degenerates into serious graft. The FCPA bans U.S. companies from bribing foreign officials. It also applies to foreign companies like Siemens that list their securities on U.S. exchanges. Companies that violate the FCPA face millions in fines, and executives can go to prison. U.S. authorities have upped the number of bribery cases they pursued to a resolution around the world, from 11 in 2005 to 34 last year, according to Trace International, a nonprofit anti-bribery group based in Annapolis, Md. In a report released June 17, Trace pointed out that China, with 25 cases completed since enactment of the FCPA, fell behind only Iraq and Nigeria for the most international corruption prosecutions. Citing a World Bank estimate that more than $1 trillion in bribes are paid each year, U.S. Attorney General Eric H. Holder Jr. on May 31 called “combating corruption one of the highest priorities of the Department of Justice.”

Chinese prosecutors, meanwhile, are getting more aggressive under their own antibribery laws, says Patrick M. Norton, a partner with Steptoe & Johnson who focuses on international mediation.

Slowly but surely, the game is changing.

China’s central bank announced on Saturday evening that it would allow greater flexibility in the value of the country’s currency, in the clearest sign yet that China will allow the renminbi to appreciate gradually against the dollar.

The People’s Bank of China said that the Chinese economy was strengthening after the global financial crisis and that it was “desirable to proceed further with reform” of the currency, known as the renminbi or yuan. The announcement comes a week before world leaders gather in Canada for the Group of 20 and Group of 8 summit meetings. A growing number of countries have been calling for China to let the renminbi appreciate, including not just the United States and European nations, but India, Brazil and Singapore in recent weeks.

This is big news. For years China has kept its currency artificially low vs the dollar. Now we might see an adjustment that let’s the market have more of an impact on the value of the currency, which can help with the China/US trade deficit.

Accordingly, Chinese officials are terrified by social media sites like Twitter and Facebook. They’ve seen what can happen in places like Iran, where resistance can spread exponentially with the power of Web 2.0 tools. , and there’s no end in sight.

Yet these repressive tactics will have a negative effect on China’s economic development. Twitter and Facebook are exploding in popularity in the U.S. and around the world. The collaborative nature of these tools presents incredible opportunities for businesses, entrepreneurs and educators. By blocking these tools, China is falling behind.

How long can this last? I suspect their finger in the damn strategy is doomed to failure.

China has begun a concerted effort to keep its export economy humming, even as demand for its goods has plummeted with the global downturn.

Risking the ire of the United States and other trading partners, the Chinese government has quietly started adopting policies aimed at encouraging exports while curbing imports, even though China, as one of the world’s largest exporters, has aggressively criticized protectionism in other countries.

The government has sharply expanded three programs to help exporters, giving them larger tax rebates, more generous loans from state-owned banks to finance trade, and more government-paid travel to promote themselves at trade shows around the world.

At the same time, Beijing has banned all local, provincial and national government agencies from buying imported goods except in cases where no local substitute exists.

The rule, issued as part of the country’s economic stimulus plan and enforcing a seldom honored Chinese law from 2003 favoring domestic suppliers, exploits China’s failure so far to sign a global agreement barring protectionism in government procurement.

And in an effort to strengthen its own exporters, it is limiting how much of certain key raw materials can leave the country.

The last thing we need is a trade war, and other countries have done things to support their local industries, but China is now a major player in the world economy. If they continue to push the envelope, they might hurt themselves in the long run.

Meanwhile, here in the United States, the economy is terrible and people are hurting, with many looking for emergency loans just to pay the bills.