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U.S. Warns China on Yuan

A Treasury report says the country comes close to manipulation.
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If China doesn't manipulate its currency, it comes pretty close and must eventually alter the policy, the Treasury Department said in a report to Congress Tuesday.

"China's fixed exchange rate is now an impediment to the transmission of price signals and international adjustment, and imposes a risk to its economy, China's trading partners and global economic growth," the Treasury report said. "It is now widely accepted that China is ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying economic conditions."

The report stopped short of classifying China, which has pegged the yuan at 8.2 per U.S. dollar since 1995, a currency manipulator. That will disappoint U.S. business interests who believe the country gets an unfair advantage in trade by keeping its exports artificially cheap.

It's generally -- though not universally -- accepted that the currency would rise against the dollar were it allowed to trade more freely.

But the U.S. suggested it was on the verge of taking a harder line with the world's most populous country.

"Current Chinese policies are highly distortionary and pose a risk to China's economy, its trading partners and global economic growth," the report said. "Concerns of competitiveness with China also constrain neighboring economies in their adoption of more flexible exchange policies."

Citing a law defining currency manipulation by foreign governments, the Treasury said: "If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation."