The US Treasury Wednesday for the second time in six months criticized China for keeping the value of the currency low, but said there is no evidence that China is manipulating the exchange value of the yuan to gain advantage on world markets.
While saying that China is not manipulating the value of its currency, Treasury Secretary John Snow made clear he expects Beijing to be more flexible in their exchange rate policy. In a statement, Snow said he was extremely disappointed with the slow pace of China's move towards flexibility.
"We've gone six months and we haven't seen as much progress as we wanted to see," said John Snow. "The Chinese are being too cautious. They aren't moving as fast as we think they could or should."
Last July China modified its rigid fixed currency link to the dollar and allowed the yuan to rise by two percent. Since then there has been a further one percent rise. Many experts say a 20 to 30 percent rise is needed to correct China's huge trade surplus with the United States and the rest of the world.
Opposition democrats in Congress have long blamed China for a loss of U.S. manufacturing jobs. Members of both parties are alarmed at the size of the Chinese surplus and have threatened protectionist measures to reduce it. Snow said now is the time for China to act.
"We're critical of China," he said. "We're saying that China is in a position to do more. We've also just heard from their president that they intend to do more. We want to watch and make sure they do."
Charles Schumer, the New York Democratic Senator who has advocated a punitive surcharge on imports from China, blasted the Treasury for its decision not to designate China as a currency manipulator. He threatened to revive the tariff measure he had earlier dropped. U.S. industry executives were also critical with the textile association accusing the Bush administration of being soft on China and unwilling to stand up for American manufacturers.
Dwight Perkins, a China specialist and economics professor at Harvard University, expects the Chinese will gradually revalue the yuan in order to reduce the trade surplus.
"I assume they will let the exchange rate move, and move by whatever it takes 20 or 30 percent," said Dwight Perkins. "They need a much more flexible rate."
China, after Japan, is the largest foreign holder of US dollars. Its dollar reserves grow as it trade surplus with America rises.