Treasury Dept: China has reduced intervention in exchange market

The US Treasury Department on Tuesday continued a pattern of not labeling China a "currency manipulator", but it said the yuan remains "significantly undervalued" and urged Chinese officials to move faster on its appreciation against the dollar and other major currencies.

In a semiannual report to Congress on international currency-exchange rates, the department noted that China has "substantially reduced the level of official intervention in exchange markets" since 2011 and "taken a series of steps to liberalize controls on capital movements".

The department also said in the report issued on Tuesday that it would "press for policy changes that yield greater exchange rate flexibility, improve transparency, level the playing field for American workers and businesses, and support a strong, sustainable and balanced global economy".

The US Treasury has not labeled any country a manipulator since it did so with China in 1994, and before that in 1992. The issue has been a major source of tension between the world's two top economies.

"There is no so-called yuan undervaluation, because the proportion of China's current-account surplus has declined in its GDP in recent years and the exchange rate tends to be balanced," Hong Lei, spokesman for the Ministry of Foreign Affairs, said at a regular news briefing on Wednesday. "We hope the US will properly address trade issues, including the exchange rate, and contribute to the overall economic ties with China," he added.

The report also said that since 2010, the yuan has appreciated by 12.6 percent against the dollar when adjusted for inflation.

On Wednesday, the yuan dropped by 0.08 percent to close at 6.2273 per dollar, remaining at the upper limit of its trading band for most of the day, according to the China Foreign Exchange Trade System. The currency closed at 6.2223 on Tuesday, a record since China unified official and market exchange rates at the end of 1993.

John Frisbie, president of the US-China Business Council in Washington, which represents more than 200 US companies doing business in China, applauded the Treasury's continued stance.

"Labeling China a currency 'manipulator' would do little to help us reach the goal of a fully convertible currency and market-driven exchange rate for China," Frisbie said in a statement.

Publicly branding Beijing, he said, might give rise to pressure in China to slow down the progress on talks with Washington on exchange rates.

Li Xunlei, deputy CEO and chief economist of Haitong Securities Co Ltd in Shanghai, said that the appreciation trend of renminbi is obvious, and that's why the US did not label China a currency manipulator.

"The floating range of the yuan is still very small, though greater than before, and there is still room for further appreciation, judging from the market perspective. But once the yuan is fully convertible and the capital account is opened up, the currency will be under pressure to depreciate."

The currency issue cropped up repeatedly during the US presidential campaign. Republican candidate Mitt Romney said he planned to label China a currency "manipulator" as soon as he took office. He and some members of Congress have argued that China keeps the yuan lower than its actual value to gain trade advantages, such as its surplus with the United States — $232 billion through September.

"The upshot is that exchange rate has little to do with the US trade balance or employment, as we have said for some time," Frisbie said.

"We need to move on to more important issues with China, such as removing market-access barriers and improving intellectual property protection."

Contact the writers at yuweizhang@chinadailyusa.com and lijiabao@chinadaily.com.cn