US declines to cite China as a currency manipulator

The finding announced Thursday came despite pressure in Congress for penalties because of America's growing trade deficit with China, which last year hit an all-time high of $256.3 billion, the largest deficit ever recorded with a single country.

In a report it is required to deliver to Congress every six months, the administration said China needed to address the "substantial undervaluation" of its currency compared with the dollar. But the report said China did not meet the technical requirements under the law to be designated as a currency manipulator.

The report noted that the Chinese currency, the yuan, has risen in value by 18.4 percent against the dollar since the Chinese government loosened its currency system in July 2005. However, American manufacturers contend the yuan is still undervalued by as much as 40 percent, making Chinese products more competitive in this country and U.S. goods more expensive in China.

Treasury Secretary Henry Paulson had hoped to use a new series of high-level talks with Chinese officials to get the country to move more quickly in addressing not only the currency issue but a number of other contentious trade issues. However, those talks so far have had only limited results.

In the new report, the Treasury Department said, "China needs to intensify its efforts to rebalance its economy" by boosting domestic demand to reduce reliance on imports and also by reforming its financial system to allow its currency's foreign exchange value to eventually be set by the markets rather than being controlled by the government.

Deputy Secretary of State John Negroponte faced tough questioning Thursday on the currency issue during a Senate Foreign Relations Committee hearing on U.S. relations with China.

Sen. Benjamin Cardin, D-Md., said he could not understand why the administration was not taking a tougher approach on the currency issue. Sen. George Voinovich, R-Ohio, said his constituents were "livid" about the China trade issue. He accused the administration of failing to get tough with Beijing because the administration wanted Chinese support for dealing with North Korea over nuclear weapons.

In a speech in Beijing, Commerce Secretary Carlos Gutierrez warned that Chinese and U.S. officials needed to guard against rising economic nationalism in both countries, calling it a "troubling trend" that threatened progress on building economic partnerships between the two countries.

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AP Diplomatic Writer Barry Schweid contributed to this report.