WASHINGTON — The U.S. Treasury Department declined on Monday to name China a currency manipulator in its semiannual report to Congress, despite the Chinese government’s devaluation of the yuan in August that sent global financial markets tumbling.
Treasury noted in its report on international economic and exchange rate polices of America’s major trading partners that China’s currency is undervalued against the dollar, but did not charge the world’s second-largest economy for undervaluing its currency to gain an unfair trade advantage. Such a decision, which the Obama administration has opted not to take in multiple reports, could have led to punitive trade sanctions at the World Trade Organization.
China devalued its currency twice in August in the wake of poor economic data, sending shock waves through the global economy.
“On Aug. 11, China announced a change in how it sets the daily reference rate of its exchange rate regime,” the Treasury Department said in the new report. “The move surprised markets, underscoring the importance of conducting macroeconomic policy transparently. Since this move, the yuan depreciated 2.3 percent against the dollar through September.”
Despite the devaluation in mid-August, Treasury said China’s currency had appreciated significantly in 2015.
“Before the recent shift in exchange rate policy, the yuan had remained largely unchanged relative to the dollar, and thus had appreciated in real effective terms, along with the dollar, over the course of 2015,” the report said. “All told, the yuan has appreciated nearly 30 percent in real effective terms since June 2010. The core factors that have driven yuan appreciation remain in place: strong external balances which include a sizable and growing current account surplus, sharply improved terms of trade, and ongoing net inflows of foreign direct investment.”
But the Treasury said the yuan “remains below its appropriate medium-term valuation.”
As a result, the agency said it will carefully monitor China’s implementation of the new exchange rate policy and “how it will work in practice — specifically, whether China will allow the yuan to respond to market forces for appreciation as well as for depreciation.”
“The fundamental challenge of economic rebalancing in China remains,” the report said. “The share of investment in Chinese GDP is still high and the share of household consumption low. China needs to meaningfully shift its domestic economy towards greater reliance on household consumption.”