US: China does not manipulate currency
The United States says China does not manipulate its currency exchange rate with the greenback but still urges Beijing to set the yuan free from a fixed peg.
"No major trading partner of the United States met the technical requirements for designation" as an unfair currency manipulator, the Treasury Department report said.
A currency that is pegged is not necessarily being manipulated under the law, the Treasury Department said.
Although China escaped designation, the Treasury Department promised to press Beijing to liberalize the yuan exchange rate, fixed at 8.28 to the dollar since 1995.
US exporters say the Chinese currency is undervalued, making American goods too expensive to compete in China and China-made goods unfairly cheap for Americans.
"A pegged exchange rate policy is not appropriate for a major economy in the global system such as China, and the Chinese government has indicated publicly and at senior levels that it will move to a flexible exchange rate regime," the Treasury Department report said.
China had accumulated US$57 billion in foreign exchange reserves in the second half of 2003, bringing the total reserves to US$403 billion, the Treasury said.
"China's accumulation of foreign exchange reserves created monetary pressures that fueled domestic credit growth and inflation," it said.
China said Thursday its economy grew at an annual rate of 9.7% in the first quarter of 2004. Chinese official figures showed that the gross domestic product (GDP expanded 9.1% in 2003.
"Rapid acceleration of China's import demand growth in 2003 reflects this rapid GDP growth and potential overheating and over-investment," the Treasury Department said.
Under US law, if any country had significantly harmed US trade through manipulation of exchange rates, Treasury Secretary John Snow would be required to launch "expedited" negotiations to reform the practice.
The International Monetary Fund's chief economist, Raghuram Rajan, said Wednesday he saw indications that the Chinese economy was running too fast, but warned that a freer currency may not help immediately.
"There are some signs of overheating," Rajan said.
"There is a tremendous amount of investment that is going on, credit has expanded tremendously and the Chinese authorities are trying to control this," he told reporters by telephone.
"The jury is still out on whether they have brought it under control."
The Chinese authorities faced a major obstacle reining in credit allocations by banks and bank branches, he said.
"Whether more limited exchange intervention will help solve that problem I think is an open question."