US President Barack Obama’s administration said on Tuesday that China’s currency remained “significantly undervalued,” but stopped short of labeling the world’s second-biggest economy a currency manipulator.
Although Beijing controls the pace at which the yuan can rise, the US Department of the Treasury said in a congressionally mandated semi-annual report that China did not meet the legal requirements to be deemed a currency manipulator.
The label is largely symbolic, but would require Washington to open discussions with Beijing on adjusting the yuan’s value.
It has been 18 years since the US Treasury has designated any country a manipulator. China was labeled a manipulator between 1992 and 1994.
The latest report reflected both the administration’s desire to maintain good relations with its top creditor and an attempt to keep up pressure for changes in China that could benefit the US economy and mollify domestic critics.
The report noted that the yuan had risen 12.6 percent against the US dollar in inflation-adjusted terms since June 2010. An official said it was up 9.7 percent on a nominal basis through Tuesday, when it closed at a record high.
The Treasury also said China had “substantially” reduced its intervention in foreign exchange markets since the third quarter of last year and had loosened capital controls.
“In light of these developments, Treasury has concluded that the standards ... have not been met with respect to China,” it said.
“Nonetheless, the available evidence suggests the renminbi remains significantly undervalued,” the report added, echoing the Treasury’s last assessment in May.
Chinese Ministry of Foreign Affairs spokesman Hong Lei (洪磊) denied the currency was undervalued.
“In recent years, the ratio between China’s GDP and the current account surplus has decreased on a daily basis. The renminbi’s exchange rate is in equilibrium. There is no so-called problem that the exchange rate is undervalued,” he told reporters in Beijing.
“We hope that the US side can appropriately deal with trade and economic issues, including the renminbi exchange rate,” Hong added.
Ted Truman, a Treasury official under former US president Bill Clinton, said it was important to keep a watchful eye on China’s currency policy.
“We have the aftermath of 10 years of misbehavior,” said Truman, who is now with the Peterson Institute for International Economics. “It would probably be unwise and too soon to declare victory.”
Many US businesses and lawmakers complain that Beijing keeps the value of its currency artificially low to gain an advantage in trade at the expense of US jobs, but an international consensus is growing that the yuan is closing in on its fair value after about a decade at an artificially weak level. The IMF softened its language on the yuan in July.
Signs of a recovery in the Chinese economy and a new round of quantitative easing by the US Federal Reserve have led traders to push the yuan higher.
However, China’s central bank has kept a lid on the move. The central bank allows the yuan to rise or fall by only 1 percent from whatever rate it sets each day.
Senator Charles Schumer, the No. 3 Democrat in the US Senate and a longtime critic of China’s yuan policy, said the Treasury passed up an opportunity to level the trade playing field.
“It’s time for the Obama administration to rip off the band-aid, and force China to play by the same rules as all other countries,” the New York senator said in a statement.
However, the US-China Business Council, which represents US companies that do business with China, applauded the decision.
“The exchange rate has little to do with the US trade balance or employment,” council president John Frisbie said. “We need to move on to more important issues with China, such as removing market access barriers and improving intellectual property protection.”