The United States toughened its warning on China Thursday for "lack of flexibility" of its yuan currency and for rapidly building up its foreign reserves, but stopped short of branding Beijing a currency manipulator.
"Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy," the U.S. Treasury said.
The Treasury's statement came in its semiannual report to Congress under a law requiring it to determine whether any foreign economy manipulates its currency against the U.S. dollar.
U.S. lawmakers and several industry groups have accused China for years of artificially weakening the value of the yuan, or renminbi, to boost its export competitiveness.
The yuan, which has depreciated 6.9% against the dollar since February 2009, remains "undervalued," the Treasury report said.
China's foreign exchange reserves, already the world's largest, jumped nearly 20% from a year ago to a record $2.27 trillion at the end of September, the Chinese central bank said Wednesday.
The language in the Treasury report appeared stronger than in a first report sent by President Barack Obama's administration to lawmakers in April, three months after he entered the White House.
Treasury Secretary Timothy Geithner had set off alarms in Beijing when he charged during his January Senate confirmation hearing that the president believed China manipulated its currency. Officials later played down the written statement, saying staff who prepared it had recycled election campaign speeches.
Obama came into office promising to talk tough with China on a range of issues, including congressional complaints that China's manipulation of the yuan was fueling the U.S. trade deficit with the Asian giant.
Thursday's Treasury report said "no major trading partner of the United States met the standards" for branding them a currency manipulator for gaining unfair competitive advantage in international trade.
While 14 of 17 currencies studied appreciated against the dollar in the second quarter of 2009, only the Chinese renminbi remained unchanged against the dollar, the report found.
"This lack of movement of the renminbi has contributed to upward pressure on more flexible currencies in the region," it said, noting that "several emerging markets" in Asia had intervened in the market to slow the pace of appreciation.
China's overall policies played an important role in anchoring the global economy in 2009 and promoting a reduction in its current account surplus, the Treasury said.
But it noted that the recent "lack of flexibility" of the yuan exchange rate and China's reserves buildup "risk unwinding some of the progress made in reducing" global imbalances as the world confronts an economic crisis.
The development was critical as governments prepare to withdraw stimulus policies and demand by China's trading partners recovered, according to the report.
China has invested a large part of the reserves in U.S. dollar assets, such as safe but low-yielding U.S. Treasury bonds, but Beijing has tried to diversify its investments to improve its returns in the midst of the financial crisis.
As China's economic recovery from the recent global financial crisis strengthens, moving to a more flexible exchange rate will give Beijing "greater scope to maintain price stability," the Treasury report said.
This is necessary as China reduces capital controls to promote greater international use of the yuan, it said.
Copyright Agence France-Presse, 2009