The Bush administration, reflecting growing anger over China's trade practices, warned the Asian nation Wednesday that it must do more to allow its currency's value to be set by market forces.
Treasury Undersecretary Timothy Adams told a congressional committee that getting China to move toward a more flexible exchange rate system remained his department's No. 1 priority and the Chinese have failed to do enough since announcing last summer a small revaluation of the currency.
"To date, China's progress has been far too cautious," Adams said in testimony to the Senate Finance Committee. "China could easily move more rapidly towards greater flexibility. It should do so now."
Adam's comments come as the administration is seeking to step up pressure on China to do more to deal with a U.S. trade deficit which hit an all-time high for any country of $202 billion last year.
American manufacturers contend that a major reason for the deficit is that China is manipulating its currency to keep the value of the yuan artificially low by as much as 40 percent against the dollar, giving Chinese goods tremendous price advantages against American products.
Since China announced in July that it was moving from a fixed-peg for the yuan's value to a managed floating system, the Chinese yuan has risen in value against the dollar by just 3.2 percent, which economists have said will do little to deal with the huge trade gap between the two countries.
"The Chinese government must allow market forces to play a much greater role in the determination of the (Chinese currency's) value," Adams said.
Adams' testimony comes only weeks before Treasury is required under law to submit a report to Congress detailing whether any countries in the world are unfairly manipulating their currencies to gain trade advantages against U.S. companies.
Adams dodged questions on whether the administration planned to cite China as a currency manipulator in the report. He did say the administration may miss the April 15 deadline for submitting the report to Congress because of the upcoming visit of Chinese President Hu Jintao, who is scheduled to begin his first official visit to Washington on April 20.
Adams said that Hu's visit could affect the findings of the report, suggesting that China may make some concessions on the currency issue as part of the visit.
Sen. Olympia Snowe, R-Maine, told Adams that she would be disappointed if the administration failed to cite China.
"Given the significant undervaluation of its currency, we cannot afford to miss an opportunity because so many people (in the United States) are losing their jobs," Snowe told Adams.
Labeling a country a currency manipulator only triggers negotiations over the issues. But Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Max Baucus, D-Mont., introduced legislation on Tuesday that would add sanctions if countries designated as having "misaligned" currencies do not address the problem.
The Grassley-Baucus legislation was seen as an effort to head off even more punitive actions against China. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., are sponsoring legislation that would impose punitive 27.5 percent tariffs on all Chinese imports to the United States unless China allows its currency's value to be determined by market forces.
Schumer and Graham announced on Tuesday that they would delay a vote on their legislation for up to six months based on discussions they had last week with Chinese authorities that indicated China is preparing to do more to introduce currency flexibility.