China has made insufficient progress in allowing its currency to appreciate, an official US report told the Congress.
"Treasury's view, however, is that progress thus far is insufficient and that more rapid progress is needed," the US Department of Treasury said in its semi-annual report to the Congress on international economic and exchange rate policies.
It is in China's interest to allow the nominal exchange rate to appreciate more rapidly, both against the dollar and against the currencies of its other major trading partners, the report said.
"If it does not, China will face the risk of more rapid inflation, excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth.
"By trying to limit the pace of appreciation, China's exchange rate policy is also working against its broad strategy to strengthen domestic demand," it added.
The report also said that China's gradualist approach on the exchange rate also adds to the substantial pressure now being experienced by other emerging economies that run more flexible exchange rate systems and that have already seen substantial exchange rate appreciation.
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"Today's Treasury report both confirms and ignores the obvious: the appreciation of the yuan is completely inadequate, and it's not by accident," Senator Sherrod Brown said in a statement.
"While the Administration prefers to take a diplomatic approach towards the Chinese government's unlawful practice of currency manipulation, American manufacturers and workers struggling to compete against unfairly-subsidised imports can't afford to wait any longer for action," Brown said.
Congress must act this year to pass legislation addressing currency manipulation to level the playing field and help get our economy back on track, he added.