US hardens stance on Chinese currency

The Obama administration said on Thursday that it had "serious concerns" about the value of the renminbi, but stopped short of accusing China of manipulating its currency in a closely watched report to Congress.

The Treasury toughened its language on China in its semi-annual report on exchange rate policies. While acknowledging that Beijing had been important in steadying the global economy, it said recent moves to accumulate more foreign exchange reserves "risk unwinding some of the progress made in reducing imbalances".

But the Treasury did not say China was manipulating its currency, in spite of pressure from US labour groups and scores of legislators who argue that the undervalued renminbi makes China's exports unfairly cheap. Pressure has built this year as manufacturers suffer huge job losses and the unemployment rate creeps towards 10 per cent.

The report comes as the Obama administration seeks to rebalance the global economy -- particularly between the US and China -- through the multilateral framework of the G20 group of countries under the stewardship of the International Monetary Fund.

"Both the rigidity of the renminbi and the re-acceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G20 framework," the report said. "Treasury remains of the view that the renminbi is undervalued."

Officially labelling China a currency manipulator could have led to sanctions and would almost certainly have created a diplomatic rift between the two countries. President Barack Obama is due to visit the country for the first time next month amid lingering tension after he decided to impose tariffs on Chinese tyre imports.

In Congress, seven senators and 69 House members are sponsoring bills that would make currency manipulation an "actionable" subsidy, opening up China to a trade sanctions.

Lloyd Wood, of the Fair Currency Coalition, an alliance of industry, agriculture and worker groups, said the administration's failure to label China a currency manipulator would probably create more support for the bill. "We're interested in actions not words; name calling doesn't do anybody any good," he said. "This imbalance simply cannot continue."

© The Financial Times Limited 2009

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