A woman counts counts 100 Yuan notes (file photo)
A woman counts counts 100 Yuan notes (file photo)

A U.S. congressional advisory body is urging U.S. lawmakers to take tougher action against China for pursuing trade policies that harm U.S. interests.

The U.S.-China Economic and Security Review Commission said Wednesday that Congress should press the Treasury Department to designate China as a currency manipulator.

In its annual report to lawmakers, the commission said China is undervaluing its currency to maintain a large trade surplus with the United States that the commission called a "major drag" on the U.S. economy. It said the yuan's value is about 20 to 40 percent below what the market rate would be.

Beijing denies manipulating its currency, but has allowed the yuan to strengthen slightly in recent months as part of what it says is a gradual process.

The commission accused China of protecting domestic industries through an "increasingly restrictive investment regime" that makes it hard for U.S. companies to export to the Chinese market.  China says trade imbalances with the United States are a result of U.S. economic problems.

The report by the advisory panel of scholars, former U.S. officials and diplomats also examined perceived security problems in the U.S.-China relationship.  It said the Chinese military's modernization of its air and missile assets has improved Beijing's ability to threaten U.S. bases in the Pacific region.

The commission said U.S. lawmakers should urge the Defense Department to provide reports on the U.S. military's capacity to withstand a Chinese air and missile assault on the Pacific bases.  It said Congress also should press the Obama administration to work with allies in the region to strengthen their air and missile defense capabilities.

Some information for this report was provided by AP, AFP and Reuters.