November 29, 2005
Yaho News
WASHINGTON (AFP) - The US Treasury stopped short of labeling China as a currency manipulator, but said in a report that Beijing must take additional steps on revaluing the yuan to avoid the label in the future.
Photo: US stops short of branding China as currency manipulator
No US trading partner was cited in the report for currency manipulation, which could have triggered sanctions by Washington.
The finding drew sharp criticism from some in Congress and US industry who had been pressing for a tougher stand against China and who blame the low value of the yuan for the whopping US trade deficit.
China was able to avoid being labeled a manipulator because of its "initial step" toward a floating currency, said Treasury Secretary John Snow in a statement released alongside the report.
But Snow warned China that the US expects further reform of China's foreign exchange regime "as quickly as possible."
"China's adoption of a new exchange rate mechanism was an important step towards exchange rate flexibility," Snow said.
"And while China has taken additional steps to develop a market-based exchange rate and further open capital markets, its progress to date is limited and far to slow to be sufficient.... As a result, the distortions and risks created by China's rigid exchange rate still persist."
After months of intense US pressure, China freed the yuan from an 11-year-old peg to the US dollar in July, revaluing it by 2.1 percent and putting it in a trade-weighted basket of currencies. The yuan was also allowed to move 0.3 percent either way on any given day. Since then, however, the yuan has barely budged.
Some members of Congress and US manufacturers had wanted the Treasury to formally name China as a manipulator because it would be official endorsement of their view that China undervalues its currency for trade advantage.
US Senator Charles Schumer, who has long complained about Chinese currency manipulation, said the administration's logic was faulty.
"If it walks like a duck and quacks like a duck, it's a duck. The Chinese manipulate their currency and the administration should not have ducked the issue," Schumer said in a statement.
"The administration's lack of action today hurts all Americans by refusing to acknowledge the obvious -- that China manipulates its currency. The first step in getting the Chinese to play fairly is for the administration to be straight with the American people and say what they've said before: China manipulates its currency."
The National Association of Manufacturers today expressed "strong disappointment" on the finding.
"We felt that secretary Snow's comments in May made it very clear that China had to make a significant move in its currency's value to avoid being cited in this report," said NAM President John Engler.
"Since the small revaluation announced by China in July, the yuan has appreciated a mere 0.3 percent."
Engler said China has amassed more than 700 billion dollars in foreign exchange reserves as part of efforts "to suppress the value of its yuan," and that this is expected to grow to one trillion dollars next year.
"As far as we're concerned," he said, "such dollar holdings violate the International Monetary Fund rule that instructs members to 'avoid manipulating exchange rates ... to gain an unfair competitive advantage over other members.'"
The Treasury report, while critical of Chinese policies, said Washington expected further steps by Beijing on making the yuan, or renminbi, more flexible.
"China's exchange rate is not yet sufficiently flexible to meet the needs of the Chinese economy or those of the global economy," the report said.
"The Chinese authorities have said clearly that the July 21 action is the first step in a process of introducing greater exchange rate flexibility."
The report noted that Chinese President Hu Jintao told US President George W. Bush last month "that China would unswervingly press ahead with reform of its exchange rate mechanism. The Chinese authorities should do so by the time this report is next issued."
The Treasury "will monitor movements of the renminbi and the authorities' progress in allowing significant exchange rate flexibility before the next report," the document said.
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