The Obama administration backed away on Oct 15 from a showdown with Beijing over the value of China's currency that would have caused new frictions between the world's only superpower and its largest creditor.
The Treasury Department delayed a much-anticipated decision on whether to label China as a currency manipulator until after the US congressional elections on Nov 2 and a Group of 20 leaders summit in South Korea on Nov 11.
Washington and the European Union accuse China-set to become the world's second-largest economy after the United States this year-of keeping the yuan artificially low to boost exports, undermining jobs and competitiveness in Western economies.
Fears are growing of a global "currency war" as major trading powers, such as the United States and Japan, seek to weaken their currencies while emerging economies such as Brazil and South Korea raise or threaten tougher controls to limit capital flows.
The decision to delay the Treasury's semi-annual currency report reflects a desire by the Obama administration to pursue diplomacy to resolve the dispute with China rather than provoke a confrontation that could potentially lead to a trade war and affect long-term interest rates.
In July, China held $847 billion in US government debt.
In its statement, the Treasury seemed to be encouraged by China's recent action to allow its currency to rise by roughly 3 percent against the dollar since June 19.
"Since Sep 2, 2010, the pace of appreciation has accelerated to a rate of more than one percent per month," it said. "If sustained over time, this would help correct what the IMF (International Monetary Fund) has concluded is a significantly undervalued currency."
China argues that moving too quickly with currency reforms could devastate its export-driven economy.
It blames the United States for sluggish growth, high debts and an easy monetary policy that has flooded the market with newly printed dollars, weakening the US currency and putting pressure on emerging countries to keep their currencies low.
But Washington argues that Beijing could relieve that pressure by letting the yuan strengthen.
"YUAN SHOULD NOT BE A SCAPEGOAT"
The Treasury said the G20 gathering in Seoul would give world leaders an opportunity to look at how best to rebalance the global economy. This was not just the responsibility of China and the United States, it stressed.
In another important summit, leaders of the Asia Pacific Economic Cooperation forum will meet on Nov 13-14.
"The Treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings," it said.
China left little doubt about the rancor that would ensue if it is branded as a currency manipulator-a largely symbolic move by the United States that would mandate more consultations with Beijing but no immediate penalties.
"The Chinese yuan should not be a scapegoat for the United States' domestic economic problems," Commerce Ministry spokesman Yao Jian said on Friday.
The decision to delay the Treasury report appears to have been taken at the last minute. Industry sources had been primed to expect it by 1 pm EDT (1700 GMT) on Oct 15.
The Obama administration, seeming to anticipate criticism from US lawmakers who are pushing for stronger action against China, brought forward an announcement of an investigation into whether Chinese support for its clean energy sector violates international trade rules.
But that was not enough to appease Democratic Senator Charles Schumer, who has sponsored legislation to get tough with China over its currency practices.
"The Obama administration is treating the symptom but not the disease," he said. "An investigation into China's illegal subsidies for its clean energy industry is overdue but it's no substitute for dealing with China's currency manipulation."