The Wall Street Journal reports that China Daily, the state-owned newspaper of China, published a special ad in the Washington Post claiming that China's ongoing currency manipulation is not to blame for America's economic woes.

The ad includes an illustration of a crumbling building labeled “U.S. Economy” and says that “Excessive spending by Americans and low interest rates, instead of the yuan exchange rate, should be blamed for the trade imbalance between the United States and China...As unemployment numbers have soared in the U.S., China-bashing has become legitimate in the eyes of some American politicians who claim the ‘undervalued’ yuan gives Chinese exports an unfair advantage.”

The timing of the ad is interesting since, as the WSJ's Damian Paletta points out, the most recent G20 meeting fetaured a lot of "hand-wringing" and "debate" over the undervalued Yuan.  Essentially, it's not just the U.S. that is complaining about China's self-serving currency undervaluation. 

The truth is that Beijing deliberately intervenes in the currency exchange rate market to gain an artificial trade advantage over American-made goods. Nobel Prize-winning economist Paul Krugman explains that “China is taxing imports while subsidizing exports, feeding a huge trade surplus.” Since China made a pledge to allow a more flexible exchange rate in July of 2010, the yuan has appreciated less than five percent.

Currency undervaluation has helped push America's trade deficit with China to a new record of $273 billion in 2010. This massive trade imbalance has cost more than 2.4 million jobs since 2001, according to a study by the Economic Policy Institute (EPI).

China has nothing to lose by saying that its currency peg doesn't hurt the U.S. economy.  But the facts are pretty obvious-- a huge, growing trade imbalance, lost jobs, an ongoing distortion of the global market.  Beijing is playing good offense, but as the issue keeps getting raised by the international community, something has to give.