Officials ask Beijing for more flexibility

The United States on Friday shied away from naming China as a "currency manipulator", but said it would "press for policy changes that yield greater exchange rate flexibility" in the yuan.

In its latest semi-annual report to Congress, the US Treasury Department said Chinese commitments to strengthen the currency and the decline in China's current account surplus showed that Beijing was not manipulating its currency. China has also made progress in allowing the yuan to appreciate against the dollar since June 2010.

If the department found China to be manipulating its currency, President Barack Obama's administration would have to take formal steps to press for the yuan's revaluation. If talks fail, the US could impose trade sanctions.

Treasury and other administration officials have argued that such pressure could be counterproductive given that the Chinese government owns more than $1 trillion in US sovereign debt. The last time China was labeled a "currency manipulator" was in 1994.

But the report stressed that the Chinese currency remained significantly undervalued and further appreciation of the renminbi against the dollar and other major currencies was warranted.

Reacting to the report, John Frisbie, president of the US-China Business Council said Treasury made "the right call" in its policy decision.

"Branding China a currency 'manipulator' triggers nothing to help reach the goal of a fully convertible currency and market-driven exchange rate for China," Frisbie said in a statement. "In addition, the 'manipulator' label would likely lead China to react negatively and slow down progress on this issue."

The Treasury Department noted that China has pledged to move rapidly to a "more market-determined exchange rate system" in recent forums such as the Group of 20 and the US-China Strategic and Economic Dialogue.

The yuan has risen in value by 40 percent, after adjusting for inflation, against the dollar since 2005, when China began implementing currency reforms. But in 2012, Treasury said, "The yuan has been virtually flat against the dollar."

China's global current account surplus - meaning the country exports more than it imports - has dropped substantially, from 9.1 percent of gross domestic product in 2008 to 2.8 percent of GDP at the end of 2011, according to Friday's report.

During that four-year period, the US trade deficit with China has widened by a comparatively modest $22 billion, from $273 billion to $295 billion, according to the USCBC.

"The facts show that China's exchange rate is not the significant factor in the US trade deficit or US employment that many make it out to be," Frisbie said.

In a recent USCBC survey, exchange rate was ranked 26th as a factor affecting US sales to China, five places lower than the previous year.

US political leaders, including Republican presidential candidate Mitt Romney, have accused China of manipulating its currency, a move they say makes American exports less competitive. Romney had said that if he is elected he would identify China as a currency manipulator on his first day in office.

Some experts say the US has focused too much on the currency issue while neglecting opportunities that could benefit both economic powers.

Li Ruogu, chairman and president of the Export-Import Bank of China, said at a recent event hosted by the pro-growth New York Forum that the global economy depends on a close economic relationship between China and the US. The world can't afford a trade war between the two nations, he said.

yuweizhang@chinadailyusa.com

(China Daily 05/28/2012 page1)