China is not manipulating its currency exchange rates to gain an unfair advantage over US manufacturers, but its currency policy is "not appropriate," the US Treasury Department concluded in a report to Congress today.
In a semiannual report on global exchange-rate practices, the Treasury cleared China and all other key trading partners while also vowing to keep up pressure on China to let market forces set the value for its yuan currency.
The conclusion was certain to meet a hostile reaction before the Senate Banking Committee, where Treasury Secretary Mr John Snow was summoned to testify.
US manufacturers argue a pegged currency gives China an unfair trade advantage, which has cost millions of jobs and sapped US competitiveness in export markets.
The Treasury said it was actively urging China to end its decade-old practice of pegging its yuan currency at about 8.28 to the US dollar. "This policy is not appropriate for a major economy like China and should be changed," said the report to Congress on foreign exchange policy for the first half of 2003.
Mr Snow said the Bush administration "is aggressively encouraging our major trading partners to adopt policies that promote flexible market-based exchange rates" and noted he had traveled to Beijing last month to say so directly to Chinese officials.
Mr Snow also said the treasury was "actively engaged" with Japan - which again intervened in foreign exchange markets overnight by selling yen to buy dollars - on its exchange-rate policies.
The report said the Japanese government spent $59 billion in the first half of 2003, buying dollars to prevent the yen from appreciating in value and giving Japanese products a pricing edge in foreign markets.