The United States Federal Reserve Chairman, Ben Bernanke, was set to charge today that China's undervalued yuan (renminbi) amounts to an, "effective subsidy" for the country's exporting manufacturers.

Separately, some financial analysts noted the allegation reflects what could potentially amount to a WTO-actionable policy of domestic subsidy.

An undervalued currency makes products from that country relatively less expensive in export markets; China has long been accused by the U.S. and other export markets of keeping the yuan artificially low and encouraging production for export over production for domestic requirements.

China's communist-run treasury has regularly insisted that it is maintaining yuan within a narrow trading range only to promote stability important to maintaining domestic financial goals in the face of strong economic growth forces and distortions, and that in the end yuan stability benefits everyone. Today, China sells massive bonds to cover the currency interventions needed to keep the yuan at its current trading range and has amassed more than $1 trillion in foreign exchange.

Over the years, countries such as China have been accused of selling artificially low-priced goods, including bearings, into the United States for the sole purpose of accumulating stable U.S. dollars to support their central banking systems. Those allegations continue, but now are only one part of a larger picture.

U.S. National Association of Manufacturers President, Frank Vargo, said: "This is a very important message. The administration has been talking simply about currency flexibility. But Ben has come out and called the currency undervalued and told Beijing it is distorting the Chinese economy. That is significant."

Although Mr. Bernanke softened his rhetoric somewhat when actually giving the speech in Beijing, the advance text said the, "effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting rather than producing for the domestic market."

In his actual speech, Mr. Bernanke said only that China risks losing control of its economy unless the yuan is allowed to respond to market conditions, rise in value, and in doing so strengthen China's central banking and strained financial systems.

He went on to say, "Monetary policy can work well only to the extent that financial markets are sufficiently developed to allow the monetary authorities' interest-rate decisions to affect economic activity in a reasonably predictable way."

Most international financial analysts indicate the yuan is undervalued by between 25% and 40% against the U.S. dollar, which translates into charges of a 25% to 40% subsidy for export-oriented manufacturers.

In 2005, the U.S. trade deficit with China was USD $202 billion. In October 2006 alone, the U.S. trade deficit with China was more than $24 billion; China now accounts for 40% of the total U.S. trade deficit.