WASHINGTON, The U.S. Treasury cleared China of official accusations of currency manipulation Friday, but said progress toward allowing the yuan to appreciate was “insufficient.” In a report to Congress, the Treasury said that China, eight other countries, including Taiwan, and the eurozone had not manipulated exchange rates “for purposes of … gaining unfair competitive advantage in international trade.” “Based on the resumption of exchange rate flexibility last June and the acceleration of the pace of real bilateral appreciation over the past few months,” China’s behavior did not qualify under the official definition of manipulation, it said in the long-delayed report. “Treasury’s view, however, is that progress thus far is insufficient and that more rapid progress is needed.”
It pledged to “continue to closely monitor the pace of appreciation” of the yuan. In addition to China, the Treasury looked at the policies of the eurozone and eight other economies: Brazil, Britain, Canada, Japan, Mexico, South Korea, Switzerland and Taiwan. The 10 together account for about 75 percent of U.S. trade.
“Treasury has concluded that no major trading partner of the United States met the standards” of manipulation as identified by the law “during the period covered in this report.” The Chinese currency policy has been a major irritant in bilateral relations with the world’s second-largest economy, and was a key topic of discussion when U.S. President Barack Obama hosted Chinese President Hu Jintao on a state visit last month. The United States accuses Beijing of keeping its currency undervalued, flooding the country with cheap exports and costing U.S. jobs. U.S. lawmakers have pushed the Obama administration to get tough with China over the yuan.
A bill threatening sanctions to punish Beijing’s currency policy is lurking in Congress, which has awaited the Treasury report since it was first supposed to appear on Oct. 15. China has pledged to allow the yuan to gain value, but at a measured pace so as not to destabilize its rapidly expanding economy. The Treasury said the yuan, also called the renminbi (RMB), had appreciated 3.7 percent against the dollar between mid-June and Jan. 27. In fact, it added, weighing the higher rate of inflation in China, “the RMB has been appreciating more rapidly against the dollar on a real, inflation-adjusted basis, at a rate which if sustained would amount to more than 10 percent per year.” The report also said that many Chinese know a more flexible exchange regime will benefit the country, and that the nascent creation of an offshore market for the yuan, mainly in Hong Kong, represents the beginning of a shift. But that was not enough to placate China’s critics in Congress. Democrat Max Baucus, head of the Senate Finance Committee, slammed the findings.