US concludes China isn't a currency manipulator

Updated: 2012-05-27 00:15

By Zhang Yuwei in New York (

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The United States on Friday declined to name China a currency manipulator but said it would "press for policy changes that yield greater exchange rate flexibility" in the yuan.

The Chinese currency remains "significantly undervalued" and "further appreciation of the RMB (renminbi) against the dollar and other major currencies is warranted," the US Treasury Department said in its latest semiannual report to Congress on international exchange-rate policies.

Based on yuan appreciation against the dollar since June 2010, the decline in China's current account surplus and Chinese commitments to strengthen the currency, Beijing didn't meet the threshold of being labeled a "currency manipulator".

"The extent of misalignment appears to have narrowed" over the past two years, the report said.

John Frisbie, president of the US-China Business Council (USCBC) 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 so far in 2012, Treasury said, "RMB 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, to $295 billion from $273 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, the exchange rate ranked 26th as a factor affecting US sales to China, five places lower than in the previous year.

Declaring China a currency manipulator for the first time since 1994 would require President Barack Obama's administration to take formal steps to press for the yuan's revaluation. 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.

Frisbie said the US and China should continue to focus on issues that matter and ensure effective solutions to the most pressing problems.

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 said that if he is elected he will identify China as a currency manipulator on his first day in office.

Opposition to the Treasury decision came from at least two of Obama's fellow Democrats.

Senator Charles Schumer of New York, who has sponsored legislation that would punish Chinese imports over the yuan's valuation, said: "The administration continues to let China get away with flouting trade rules just for the sake of diplomacy. Calling out China as a manipulator may be awkward, but it is time to take off the kid gloves."

Ohio Democrat Sherrod Brown, a frequent proponent in the Senate of workers' rights, said: "Once again, the US Treasury Department has given China a free pass when it comes to its currency manipulation. While we’re seeing American manufacturing rebound, China is stepping up its efforts in a number of critical sectors, including clean and solar energy, advanced manufacturing, and auto parts."

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.

Stephen Roach, former non-executive chairman of Morgan Stanley in Asia, said at the same event that Congress has "allowed the US-China relationship to be hijacked by this fixation on the renminbi" and said US policy-makers are following "bad advice" by emphasizing the issue.

The US, said Roach, should "get off the renminbi story" and shift focus away from problems and toward "opportunities" with China, such as having US exporters sell into China’s growing consumer market.

"It's a huge opportunity for us. Shame on us if we don't take advantage of this opportunity," said Roach.

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