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Page last updated at 04:37 GMT, Friday, 16 October 2009 05:37 UK

US criticises 'inflexible yuan'

Chinese money
China's currency is not freely convertible but its use is spreading

The US Treasury has criticised China for what it described as the lack of flexibility of the Chinese currency, the yuan.

It also criticised the rapid build-up of China's foreign exchange reserves in a report to the US Congress.

The Treasury said it had serious concerns about the rigidity of China's exchange rate.

But it stopped short of accusing China of currency manipulation, a politically contentious issue in the past.

"Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework," the Treasury report said.

Undervalued?

The yuan, which has depreciated 6.9% against the dollar since February 2009, remains "undervalued", the report said.

China's foreign exchange reserves, already the world's largest, jumped nearly 20% from a year ago to a record $2.27 trillion at the end of September, the Chinese central bank said.

Some US lawmakers and industry groups allege that China keeps its currency at artificially low levels against the dollar to gain advantages in trade.

During US Treasury Secretary Tim Geithner's confirmation hearings in January, he had told the Senate that US President Barack Obama believed that China manipulated its currency.

That sparked vehement denials from China and prompted a back-down by the Obama administration.

'Missed moment'

The Treasury's latest refusal to describe China as a currency manipulator has drawn fresh criticism from US manufacturers.

"We think this is a missed opportunity," said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.

If China had been designated as a currency manipulator, it would trigger negotiations between the two countries and could lead to economic sanctions if the US took a case before the World Trade Organisation.

American manufacturers contend that China's currency is undervalued by 20% to 40% against the dollar, giving the country a huge trade advantage.

An undervalued Chinese currency means that Chinese products are cheaper for US consumers and American products cost more in the Chinese market.

The US trade deficit with China is its largest with any country.

China has said it wants its currency to be internationally convertible but has appeared reluctant to relinquish state control of the currency and economic policy in general.



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