The United States Thursday accused China of keeping its yuan currency "substantially undervalued," but stopped short of branding Beijing a currency manipulator.
"Neither China or any other major trading partner of the United States met the requirements" for US designation of having manipulated its currency, the Treasury said in a highly anticipated report on foreign-exchange rates.
Still, the United States ratcheted up its longstanding criticism of China's yuan, or renminbi (RMB).
"The recent acceleration (in the yuan's value) in appreciation is a welcome development. However, overall gains remain insufficient," the twice-yearly Treasury report to Congress said.
As of April 15, the Treasury said the yuan had gained 18.4 percent in value against the dollar since China ended the dollar peg in 2005.
It called on China to maintain the recent faster pace of yuan appreciation, "as the currency remains substantially undervalued" and upward market pressures on the currency "remains strong."
President George W. Bush's administration has resisted stiff pressure from some lawmakers to sanction China for currency manipulation.
The US trade deficit with China ballooned 10 percent last year to a record 256.3 billion dollars, stoking fresh protests in Congress and the business sector that the Asian powerhouse deliberately manipulates the yuan to maintain an unfair trade advantage.
At a Senate hearing Thursday on US-China ties, Deputy Secretary of State John Negroponte rebuffed a question about whether Washington should use "more aggressive tools" to get Beijing's attention.
"Whether you think that the upward revaluation of the currency by 18 percent is adequate or not is perhaps a matter of debate," Negroponte said. "It is a change and it's not an insignificant one."
Senate Finance Committee Chairman Max Baucus, commenting on the Treasury report, said: "The real challenge is compelling our economic partners, especially China, to play by the rules.
"That is why there remains a need for Congress to pass robust legislation addressing currency issues with China and with any other country whose currency is fundamentally misaligned."
The Treasury report highlighted that China's currency undervaluation is creating risks "for itself, the Asian region and the world economy in which China is playing a greater role."
"Chinese exchange-rate practices justifiably remain a focal point for the international community."
It underscored that China's "rigid" forex policy "continues to support large-scale domestic liquidity creation, which threatens monetary and price stability," and urged China to "intensify its efforts to rebalance its economy."
Specifically, the Treasury recommended that China boost domestic demand and consumption-led growth, reform its financial system, and achieve "greater monetary policy autonomy" through rapid yuan appreciation and "greater flexibility" of its forex regime.
The Treasury said it has frequently and regularly been "reinforcing" its forex message to Chinese authorities "and will continue to do so."
The report mainly focuses on international economic and forex developments in the second half of 2007 for the most part, but includes some data through mid-April.
Regarding the euro, the currency of 15 European Union member nations, the Treasury noted that its value is "market-determined" and its exchange rate with the dollar "has, at times, experienced sharp fluctuations."
"But in general volatility throughout 2007 and 2008 has been near the norm."
The Treasury said that while the United States had made "substantial progress" in reducing its current account deficit, "less progress has been made in reducing global imbalances."
"China's external surplus continues to remain excessively large. Increases in oil prices have pushed the external surpluses of many oil exporters higher," it said, adding that "Germany and Japan also continue to have large external surpluses."
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