The U.S. Treasury Department has issued its strongest warning yet to China over its currency, saying the country could be deemed a "manipulative trade partner" if it does not revaluate the yuan soon. "It's our view that the time has come" for China to have more flexible exchange rates, U.S. Treasury Secretary John Snow said Tuesday. CNN quoted today a Treasury Department report as saying that if China continued its current trends without substantial alteration, its policies would likely meet the statute's technical requirements for designation as a manipulative trading partner. "Current Chinese policies are highly distortionary and pose a risk to China's economy, its trading partners and global economic growth," it said. However, Snow stopped short of saying that the Chinese should allow their currency to float freely along with the dollar, euro and other world currencies. Snow said the Chinese financial system, while making great progress in recent years, was not ready for the stress of a free-floating currency. Snow spoke as the United States was releasing its twice yearly "Report to Congress on International Economic and Exchange Rate Policies." The Treasury Secretary said the United States had concluded in the last six months that the Chinese were now capable of adding more flexibility to their exchange rate. An adjustment would make Chinese goods more expensive in the United States, but would make U.S.-made goods cheaper for Chinese companies and consumers. U.S. exporters claim the yuan is as much as 40 percent undervalued, making Chinese goods unfairly cheap. Snow added that the Chinese leaders have assured him that China wishes to move to a more flexible system. China has been sending mixed messages of late concerning its currency revaluation. On Tuesday, Vice Premier Zeng Peiyan told a business forum on Beijing that China would push forward steadily with reform of the yuan. But a day earlier, Chinese Premier Wen Jiabao insisted Beijing would not bow to foreign pressure for a rise in the currency. The yuan, also known as the renminbi, has been pegged near 8.28 per U.S. dollar since the 1997/98 Asian financial crisis. On Tuesday, Chinese President Hu Jintao said China aimed to lift the size of its economy to $4 trillion by 2020 -- effectively quadrupling its gross domestic product of five years ago. Hu, delivering the keynote address at the Fortune Global Forum in Beijing, said the 2020 target was a "formidable challenge" that would require an uphill battle. A 2020 gross domestic product of $4 trillion would put China in sight of Japan, which is now the world's second-largest economy ($4.1 trillion) behind the United States ($10 trillion). Hu told the international business audience at the forum China would continue to work hard to open up to overseas investors.
