* US Treasury says China yuan "substantially undervalued"
* US-China Business Council says backs Treasury decision
* Analyst says currency report becoming a "minor joke"
(Adds quotes from report)
By Doug Palmer
WASHINGTON, May 27 The U.S. Treasury Department
ruled on Friday China was not manipulating its currency to gain
an unfair trade advantage, but said Beijing still needs to
allow the yuan to rise much faster in value.
Although the Obama administration has often used blunt
language to warn China over its currency practices, the
semiannual report issued by Treasury on Friday maintained its
practice of avoiding the harsher step of naming it a currency
The department said it concluded China did not meet the
U.S. legal definition of a currency manipulator due to the
appreciation of its currency -- known as the yuan or renminbi
-- since June 2010 and recent Chinese statements that it would
continue to promote exchange rate flexibility.
But a number of factors, including China's continued rapid
accumulation of dollar reserves and a projected widening of its
current account surplus, "all indicate that the real effective
exchange rate of the renminbi remains substantially
undervalued," the department said.
"Treasury's view ... is that progress thus far is
insufficient and that more rapid progress is needed," the
department said in the report.
The report had originally been due on April 15 but was
delayed ahead of a key meeting with senior Chinese officials in
Washington earlier this month. China says it is moving to
revalue the yuan, but will proceed at its own pace.
The yuan closed at 6.4917 to the dollar on Friday, little
changed on the day, but up 5.15 percent since it was loosened
from a peg to the dollar in June 2010.
Treasury's decision came as no surprise, even though the
U.S. trade gap with China hit a record $273 billion in 2010.
President Barack Obama's Democratic administration has
declined to name China as a currency manipulator in five
consecutive reports now, following the pattern set by the
Republican administration of former President George W. Bush.
Many U.S. lawmakers and import-sensitive manufacturers,
such as steel and textiles, claim that China's currency is
undervalued by as much as 40 percent, giving Chinese companies
an unfair price advantage in international trade.
But Erin Ennis, vice president of the U.S.-China Business
Council, which represents roughly 230 American companies that
do business in China, said Treasury made the right call.
"While USCBC has advocated repeatedly that China should
allow its exchange rate to better reflect market forces,
designating China as a 'manipulator' would achieve nothing,"
Congress has threatened for years to pass legislation to
pressure China to revalue its currency, but so far no bill has
reached the president's desk.
Commerce Secretary Gary Locke, tapped to be the next U.S.
envoy to China, told the Senate Foreign Relations Committee on
Thursday that a more flexible Chinese currency was key to
U.S.-China economic rebalancing.
"We are seeing movement on the currency," he said,
referring to a roughly 5 percent increase since China slightly
loosened the yuan peg to the dollar in June 2010.
"We believe it should float more and faster," Locke said.
By preventing the yuan from rising more rapidly, China
imposes an unfair burden on other emerging economies with more
flexible exchange rates and eliminates a tool it could be using
to counter domestic inflation, Treasury said.
Derek Scissors, a research fellow with the Heritage
Foundation, said he agreed with Treasury's decision not to cite
China because it should be focused on other Chinese policies
that are much more damaging to the United States.
However, the department has turned the report into a "minor
joke" by repeatedly delaying its release, he said.
"It is no longer ever issued when scheduled because that
time is always wrong for some reason. ... At this point no one
should take the report seriously," Scissors said.
Altogether, Treasury reviewed the exchange rate practices
of 10 major trading partners in the semi-annual report. It
concluded none was manipulating their currency to gain an
unfair trade advantage or to prevent an effective balance of
(Reporting by Doug Palmer, Glenn Somerville and Paul Eckert;
Editing by Leslie Adler)