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US stops short of accusing China of currency manipulation
2007-12-20
The US government declined to name China a currency "manipulator" but said in a report Wednesday that the Chinese yuan remains severely undervalued against the dollar. The Treasury, in a semiannual report to Congress, maintained its position that China should quicken its pace of economic reforms that would help lift the yuan's value, but said there was no evidence of manipulation under US law. "Treasury concluded that neither China nor any other major trading partner of the US met the requirements for designation" as a manipulator of their currency. The conclusions allowed China to avoid a process that could trigger sanctions under US law. The report acknowledged that the yuan, also known as the renminbi, appreciated against the dollar by 12.1 percent since a new currency regime was imposed in July 2005 that allowed it to trade in a wider range. The Chinese currency rose by 2.5 percent in the first half of 2007 and another 3.2 percent in the second half through December 11. Against a broader range of currencies, the gain has been 3.8 percent since 2005. Nonetheless, the report said China's economic policies have led to a range of imbalances in the global economy. "In the context of China's efforts to rebalance its economy, the substantial undervaluation of the renminbi poses risks for China's economy," the report stated. "It contributes to an unbalanced pattern of Chinese growth, which is export, capital and resource-intensive ... It is also a factor contributing to China's growing trade surplus, which heightens tensions with its trading partners, at a time when global protectionism is clearly on the rise." The report noted however that China has had to intervene in currency markets to maintain the value of the yuan. "Prolonged, one-way intervention on foreign exchange markets by the central bank, unprecedented foreign exchange reserve accumulation and a steadily expanding current account surplus are clear indicators of yuan undervaluation," the report said. Treasury has never used the report to accuse China of unfair exchange rate policies, despite criticism from Congress. Democratic Senator Charles Schumer blasted the Bush administration for its stance. "In refusing to brand China as a currency manipulator, which is so obvious, the Administration gives Congress no choice but to act on its own. This report is the strongest case possible for our legislation," Schumer said in a statement. The US and European Union have both raised concerns that China's fixed currency is worsening their trade deficits. China currently has a massive trade surplus and has risen in importance as an international exporter, allowing it to increase its income while other countries increase their debt. Treasury Secretary Henry Paulson travelled to China last week as part of the Strategic Economic Dialogue between the US and China, but the two countries failed to achieve any significant headway on the currency issue. The National Association of Manufacturers said formally designating China would put more pressure on Beijing to make reforms. "While we support Secretary of Treasury Paulson's approach to the US-China Strategic Economic Dialogue and the other steps he is making to press China to revalue the yuan more quickly, these processes would be made easier by Treasury formally acknowledging that China is manipulating its currency," said NAM president John Engler in a statement. US manufacturers have repeatedly pressured for action on China's currency to help limit the advantage of cheaper Chinese-made products. "This is not just an issue in the United States. Calls for faster appreciation increasingly are come from other world leaders," Engler said, noting that China is holding some 1.4 trillion dollars of currency reserves of which 500 billion was accumulated over the last year.
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