The US Treasury on Tuesday again stopped short of labeling China a currency manipulator, noting gains in the value of the yuan, but said the currency remains "significantly undervalued."
In a twice-yearly finding to answer congressional critics of China's overwhelming bilateral trade advantage, the Treasury declined to slap Beijing with the currency manipulator tag, a move that could spark US trade sanctions.
The US Treasury argued that Beijing knows that an appreciating currency is in its own interest, and said the yuan, or renminbi (RMB), had gained 9.3 percent against the dollar between June 2010 and November 2012.
It said that when inflation was taken into account, the value of the Chinese currency had increased 12.6 percent since June 2010, when Beijing pledged to allow the yuan to trade more freely.
Nevertheless, it said, based on Beijing's huge stock of foreign reserves and its strong trade surplus, the yuan's appreciation has been "insufficient."
Those and other factors "suggest that the real exchange rate of the RMB remains significantly undervalued and further appreciation of the RMB against the dollar and other major currencies is warranted."
After hitting a year low in July of around RMB 6.39 per dollar, the currency has steadily climbed in recent weeks to hit a fresh record high of RMB 6.22 per dollar on Monday. It was trading around 6.227 per dollar in late trade Tuesday.
The US Treasury regularly reviews the exchange rate policies of nine economies that account for 70 percent of US foreign trade, with most of the focus on China, the world's second largest economy.
Critics in Congress accuse Beijing of keeping the yuan artificially low to make Chinese exports unfairly cheap. They want the Asian nation officially labelled a manipulator in order to apply sanctions against the country.
The administration of President Barack Obama has raised trade pressure on China but has refrained from any formal action on the currency front.
In its last report in May, the Treasury also said the yuan was "significantly undervalued."
Republicans used the issue of China's currency to batter Obama ahead of the November 6 elections, but the Democratic incumbent handily defeated his Republican rival Mitt Romney.
Romney had accused Obama of going easy on Beijing and promised, if elected, to label China a manipulator on the first day of his presidency.
The US-China Business Council, which has regularly opposed the push to brand China a manipulator, praised the Treasury report.
"The Treasury Department once again made the right call on China's currency policy in its report to Congress.
"Labeling China a currency 'manipulator' would do little to help us reach the goal of a fully convertible currency and market-driven exchange rate for China," the group said in a statement.
"We need to move on to more important issues with China, such as removing market access barriers and improving intellectual property protection."