The U.S. Treasury Department said Tuesday that China's currency is "significantly undervalued," but stopped short of labeling it a currency manipulator.
The Treasury said in a semi-annual report to Congress that China did not meet the legal requirements to be named a currency manipulator, a designation that could lead to sanctions.
It noted that China has allowed the value of the renminbi to rise over nine percent against the dollar since June 2010. But it said this was insufficient, given China's strong trade surplus and large foreign exchange reserves.
◆ China's Reaction
Chinese Foreign Ministry spokesperson Hong Lei denied the accusation Wednesday.
"There is no so-called problem that the exchange rate is undervalued. China will continue to press ahead with the reform of the renminbi exchange rate in a self-initiated, controllable and gradual manner," said Hong Lei. "We hope that the U.S. side will deal with trade issues, including the exchange rate issue, appropriately so as to maintain the sound and stable development of China-U.S. trade relations."
The issue is a regular point of contention between the world's two largest economies. Washington has long accused Beijing of intentionally keeping the value of its currency low in order to give Chinese companies an unfair advantage over U.S. manufacturers.
◆ Less of an Issue?
But Jamie Metzl of the Asia Society says the value of China's currency has become less of an issue for the United States in recent years.
"China does manipulate its currency. But the only issue is actually a political one, which is that they're doing it less than they used to do it, and the United States has bigger fish to fry," said Metzl.
Metzl says the U.S. is more concerned with getting Beijing to loosen its restrictions on foreign companies doing business and China and to crack down on the massive theft of intellectual property.
Rorry Daniels of the National Committee on American Foreign Policy agrees. She says the Treasury's decision reflects President Barack Obama's desire to encourage economic reforms through a less adversarial relationship.
"I believe that China thinks that it is in their own interest to raise the value of their currency and that the Obama administration is giving them some breathing room on this issue, so that they can concentrate on other issues in the U.S.-China relationship," said Daniels.
The U.S.-China relationship was a major topic of the recent presidential election that saw President Obama re-elected to a second term. His Republican challenger Mitt Romney had taken a more aggressive approach to China, promising to label it a currency manipulator on his first day in office, if elected.