China is Not a Currency Manipulator, Says US
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The Obama administration has ruled that China is not a currency manipulator, but nevertheless said that the renminbi remains “significantly undervalued”.
In its semi-annual report, the US Treasury said yesterday that China did not meet the definition of a currency manipulator. While the label is largely symbolic, the findings rule out any US trade sanctions against China.
The Obama administration has ruled that China is not a currency manipulator, but nevertheless said that the renminbi remains “significantly undervalued”.
In its semi-annual report, the US Treasury said yesterday that China did not meet the definition of a currency manipulator. While the label is largely symbolic, the findings rule out any US trade sanctions against China.
It has been 18 years since the US named any country a manipulator, when the Clinton administration made that accusation against China.
In declining to brand China a manipulator, the Treasury cited the reduced intervention and “steps to liberalise controls on capital movements, as part of a broader plan to move to a more flexible exchange-rate regime.”
The report added:
[quote] Treasury will continue to closely monitor exchange rate developments in all the countries covered in this report, with particular attention to the pace of RMB appreciation, and 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. [/quote]
China officially ended its peg to the US dollar in 2005 and has since adopted a managed float regime, allowing the yuan to be fully convertible for trade and financial purposes.
The yuan has gained 12.6 percent in real terms against the dollar since June 2010, the Treasury noted, while China’s trade and current account surpluses have both have fallen to 2.6 percent of GDP from peaks of 8.8 and 10.1 percent of GDP, respectively.
Despite those gains, the Treasury reiterated its stance that the yuan is “significantly undervalued” and that Beijing should allow greater flexibility in its exchange rate, something US officials have pressed for in bilateral talks and in international forums.
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Critics of China often argue that Beijing maintains an artificially low value of its currency to keep its exports cheap, gaining an unfair trade advantage at the expense of American jobs and businesses.
The US ran a $295.4 billion trade deficit with China last year, about an 8 percent increase above the 2010 level.
The issue of whether China manipulates its currency is an important political issue and is often seen as an ongoing source of tension between the world’s two largest economies.
Republican presidential nominee Mitt Romney had vowed during his failed campaign to label China a currency manipulator on his first day in office. Such a designation could eventually lead to higher tariffs on Chinese imports, but would also risk retaliation and trigger a trade war with the US’ second largest trade partner.
Chinese officials have not responded to the Treasury report but Chinese policy makers regularly say the yuan is nearing its “equilibrium”, signalling it does not have much more room for appreciation.
In July, an International Monetary Fund study concluded that the yuan was “moderately” undervalued by between 5 and 10 percent against a broad basket of currencies.
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