"It is difficult to understand why Treasury chooses not to say that currency manipulation is taking place, when everyone knows it is," says NAM President John Engler. "This was a missed opportunity to put more pressure on China."

The New York Times reports that Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee, said, "This bill requires the Treasury Department to take a firm but fair action when other nations play games with the U.S. dollar." He said the bill would pass by a "veto-proof majority in the House and Senate."

The NYT explains that the administration has taken China to court proceedings at the World Trade Organization, and that "these actions have drawn a reaction from Chinese officials, who warn that they would only strengthen the hand of hard-line elements."

But according to China's Xinhua:

China is not intentionally manipulating its currency to gain an unfair trade advantage, U.S. Treasury Department said Wednesday ... The report said that U.S. officials were unable to determine if the exchange rate policies were carried out for the purpose of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

Then, turning 180 degrees, Xinhua says, "'China has achieved exceptionally rapid growth" based on a report to Congress on exchange-rate policies of key trade partners.

The NYT adds:

European leaders have also begun warning China over its trade and currency practices. Peter Mandelson, the European Union's trade commissioner, said last week that China was "at a crossroads" in its economic relations with the West.

In a play-by-the-rules statement, Engler says "the issue of China's currency is extremely important, but at the same time we have to achieve the reforms in ways that don't undermine global trade rules. The issue is very important to America's manufacturers, and the NAM will work closely with the Administration and the Congress to increase pressure on China to act."

In its restraint regarding labeling China as a currency manipulator, perhaps the U.S. administration is mindful of a speech made by H.E. Zhou Wenzhong, Ambassador of the People's Republic of China to the United States in 2005.

He said:

As the biggest developing country and the biggest developed country of the world, China and the U.S. both have significant influence in maintaining peace and prosperity in Asia-Pacific and the world and in promoting global economic growth. In this new historical period, it is essential for China and the U.S. to work together for greater peace, stability and security in the world by continuing and deepening their cooperation on a host of traditional and non-traditional security issues such as counter-terrorism, non-proliferation, Asia-Pacific affairs, cross-border crimes and epidemics.

In his speech, Wenzhong also noted, "The number of U.S.-invested projects in China has topped 40,000, with a total paid-in investment of US$50 billion. Some Chinese companies have also set up business in the United States." In contrast, as of March 2007, Mainland China holds US$420.2 billion of U.S. Treasury securities, according to the U.S. Treasury.

"Some in Washington and world markets fear that China might decide to suddenly dump its dollar holdings, setting off a tidal wave of sales and imperiling the U.S. economy," according to Interpress New Service (IPS), which goes on to report, "Reserves topped US$1.2 trillion by the end of last month, confirming China's status as the world's biggest holder of foreign exchange reserves."

What is more, they continue to climb by more than 20 billion dollars a month on the back of China's ever growing trade surplus.

How China decides to use its newly acquired wealth has ramifications for financial and commodities markets worldwide as was evident by last year's jump in the price of gold following reports that China was preparing to buy huge quantities of it.

Resources
A missed opportunity to deal more effectively with the issue," Engler Says
Nam.org, June 13, 2007

4 in Senate Seek Penalty for China
by Steven R. Weisman
The New York Times, June 14, 2007

China is not manipulating its currency: U.S. Treasury
by Xinhua, June 14, 2007

The Future of China-U.S. Relations
by H.E. Zhou
Asia.org, September 22, 2005

Major Foreign Holders of Treasury Securities
by U.S. Department of the Treasury/Federal Reserve Board
U.S. Treasury, May 15, 2007

Economy-China: Trillion Dollar Investment Blues
by Antoaneta Bezlova
Inter Press Service, April 13, 2007