In a semi-annual currency report to Congress, the US Treasury Department has expressed its "serious concern" about the value of Chinese currency, but it declined to cite China as a currency manipulator.

The action triggered new concerns among members of Congress and US manufacturers who believe that China is manipulating its currency in order to gain an unfair advantage in international trade. Lloyd Wood, speaking on behalf of the Fair Currency Coalition, an alliance of industry, agriculture and labor groups, said the Treasury Department's position likely would create more support for legislation pending in Congress that would label China's currency policies an actionable subsidy that could lead to trade sanctions under US trade laws. "We're interested in actions, not words," he said. "This imbalance simply cannot continue."

The Obama administration is opposed to the legislation, opting instead for diplomatic efforts to address the problem. That could be stepped up when President Barack Obama visits China next month.

The lengthy Treasury report said in part: "Although China's policies played an important role in anchoring the global economy in 2009 and promoting a reduction in its current account surplus, the recent lack of flexibility of the renminbi exchange rate and China's renewed accumulation of foreign exchange reserves risks undoing some of the progress made in reducing imbalances. 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 economy." Noting that the renminbi has  depreciated 6.9 percent since February 2009, the report said "we believe that the renminbi is undervalued."

The report also said China must continue to reform its development policies by moving away from a strategy of export growth and placing more emphasis on domestic consumption.

October 20, 2009