Treasury Says China Still Not a Currency Manipulator

Stephanie Henry

The US Treasury Department in its latest exchange rate report did not cite China as a currency manipulator, but said that the renminbi (RMB) remains “significantly undervalued.” In its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, Treasury said that China’s “real effective exchange rate appreciated by more than 10 percent in the past six months, the fastest pace since 2009.” However, Treasury noted that this appreciation does not go far enough, and that further appreciation is necessary in order to achieve China’s goal of internal rebalancing.    

Treasury noted that China has made “real progress” in the RMB’s appreciation, particularly over the last six months. However, it said that China’s progress toward rebalancing its economy “has been slow to materialize.” Currently, household consumption lags behind investment in China at 35 percent of GDP, compared to 50 percent for investment. China is seeking to lower its reliance on investment and strengthen domestic consumption to help ensure economic stability, while at the same time promoting economic growth. 

China committed to reducing intervention in its foreign exchange market at the 2014 Strategic & Economic Dialogue. The report stated that China has reduced such intervention since November 2014. However, Treasury noted that the “real test of this commitment will be whether China refrains from intervening even when there is appreciation pressure on the RMB.”

Compared with Treasury’s report, other international groups have seen slightly better progress on China’s exchange rate. For example, in July 2014, the International Monetary Fund determined China’s RMB was “moderately undervalued.”

According to the US-China Business Council's (USCBC) estimates, the RMB has appreciated more than 30 percent since 2005. USCBC’s long-standing position is that China should move faster toward a more market-oriented exchange rate, and opposes legislative proposals in Congress that would impose tariffs based upon highly subjective estimates of the "true" exchange rate. USCBC has been actively advocating against such proposals, introduced in both the House and Senate in the 114th term.

Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 requires Treasury to report semi-annually to Congress on other countries' exchange-rate policies. According to the act, Treasury must pursue negotiations at the IMF or through a bilateral forum with any country it labels a currency manipulator.