WASHINGTON — Treasury Secretary Timothy Geithner went on the defensive Wednesday before a Senate panel, outlining to lawmakers for the first time publicly why the agency declined to cite China for currency “manipulation” in a biannual report it released last month.

This story first appeared in the May 21, 2009 issue of WWD. Subscribe Today.

“China has allowed its [currency] to appreciate significantly,” said Geithner, responding to questions from Sen. Sherrod Brown (D., Ohio), a vocal critic of China’s currency policies and a supporter of protecting U.S. jobs from illegally subsidized imports.

“They [China] are intervening substantially less,” said Geithner, who was testifying before the Senate Banking, Housing & Urban Affairs Committee on the government’s Troubled Assets Relief Program. “They are committed to moving to a more flexible system over time. They are moving very actively to help stimulate domestic demand so their economy is growing.”

The Treasury Department’s decision to not label China a currency manipulator, which could have led to sanctions at the World Trade Organization if the country failed to increase the value of its currency, angered several lawmakers and domestic manufacturing groups that have pushed for more punitive action against China to prod it to let its currency appreciate.

Many felt President Obama and Geithner reversed themselves on China, particularly after the President railed against the country on the campaign trail and Geithner said during his confirmation hearing that he and Obama thought China was manipulating its currency.

Critics argue China undervalues its currency by as much as 40 percent, making its exports cheaper and putting U.S. companies at a competitive disadvantage.

“GM says, ‘Well, we’ve got to save American jobs, but to stay competitive we’ve got to cut American jobs and [set up a] plant in China,’” said Brown. “But then you’re unwilling to stand up on currency and deal with that subsidy that makes it more attractive for GM to go to China to sell cars back to the U.S.?”

Geithner argued China has made “substantial changes” in its currency policies, as well as “substantial” progress in percentage terms in allowing its currency to appreciate. But Brown disagreed, saying the appreciation of China’s currency has not been substantial.

“I understand your concern,” Geithner said. “It is important to us, the administration, the President and the country. What China is doing today is playing a constructive and stabilizing role as the world goes through the worst recession in decades. So [you have to] look at the full picture with respect to the economy.”