WASHINGTON — The Treasury Department declined to label China a currency manipulator in its semiannual report to Congress on Friday but said the pace of currency appreciation needs to move more rapidly.
The Obama administration has consistently declined to cite China for currency manipulation, which could lead to sanctions at the World Trade Organization, despite pressure from U.S. lawmakers to penalize China for an undervalued currency.
Critics on Capitol Hill and in the business community argue that China’s currency is undervalued by as much as 40 percent, which puts U.S. companies at a competitive disadvantage.
Under pressure from the U.S. and other countries, China gradually has allowed the value of its currency, the yuan, to appreciate by about 5.1 percent in nominal terms against the dollar since last June, which has provided the Obama administration with some leverage in resisting calls by some in Congress to label the country a currency manipulator.
The Treasury Department said in the report that China’s currency has appreciated more rapidly against the dollar on a real, inflation-adjusted basis, at a rate of about 9 percent a year.
“Based on the ongoing appreciation of the renminbi against the dollar since June 2010, China’s public statements asserting that it will continue to promote RMB exchange rate flexibility, and China’s recent policy commitments through the G-20 and the U.S.-China Strategic and Economic Dialogue to address external imbalances, Treasury has concluded that the standards identified in [the statute for meeting the definition of currency manipulation] during the period covered in this report have not been met with respect to China,” Treasury said. “However, Treasury believes that progress thus far is insufficient and that more rapid progress is needed.”
But the agency called China’s currency “substantially undervalued” despite some rise in value since last June.
“It is in China’s interest to allow the nominal exchange rate to appreciate more rapidly, both against the dollar and against the currencies of its other major trading partners,” the report noted. “By trying to limit the pace of appreciation, China is not allowing the exchange rate to serve as a tool to counter inflation in its own economy.”