China currency is manipulated, panel tells Congress

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China continues to manipulate its currency and the nation's "exclusionary" trade policies have contributed to a massive deficit with the United States, a special commission said Wednesday.

According to a draft of its annual report to Congress, the U.S.-China Economic and Security Review Commission said lawmakers should urge the Obama administration to respond to China's policy of undervaluing its currency and look for ways to overcome trade barriers with the world's most populous country.

The commission, made up of 12 experts in trade and defense issues, was created in 2000 to provide lawmakers with advice on how to manage America's economic and military relationship with China.

"China's currency manipulation continues to harm U.S. manufacturing and employment," the commission's chairman, Ohio businessman Dan Slane, said in prepared remarks. "There appears to be no real motivation by the Chinese to adopt market-based approaches with regard to its currency."

Critics argue that China's currency, the yuan, is kept artificially low by hoarding reserves, keeping its exports cheap and undercutting international competitors. China has expressed concerns that a stronger currency could hurt its economy and undermine social stability.

The Obama administration should work with its trading partners to pressure China, the report recommended. But U.S. officials should also act independently to "encourage China to help correct global imbalances and to shift its economy to more consumption-driven growth."

President Obama and Treasury Secretary Tim Geithner have already raised the currency issue with China, most recently at the Group of 20 meeting of global economic powers in South Korea last week. But the talks have failed to gain traction.

While the G-20 meeting ended with a pledge to avoid"competitive devaluation" of currencies, the leaders postponed more difficult decisions on how to rebalance the global economy.

China announced in June that it would allow its currency to fluctuate in a narrow range according to market forces. But the commission and other critics say the move has been insufficient. The yuan has only appreciated 2.3% so far this year.

The commission also said Congress should look for tools to deal with policies that China uses to block access to its markets that are not covered under World Trade Organization regulations.

"The Chinese government quite simply intends to wall off a majority of its economy from international competition," said Slane.

Under its "indigenous innovation" policy, China has given its domestic manufactures an advantage and forced U.S. companies to disclose "sensitive technological information" to compete for lucrative government contracts, the report said.

These policies and others have contributed to America's trade deficit with China of a whopping $1.76 trillion annually, the report said.

"The resultant unbalanced nature of the trade and economic relationship between the United States and China has helped give China the financial resources and new technological capabilities that have enabled it to strengthen and grow its economic, military and political power," the report read.

The commission also advised Congress to direct the Treasury Department to "fully account" for how much U.S. debt is sold to foreign governments, as well as how much they currently hold.

The report acknowledged that China's position as the largest holder of U.S. debt "has raised concerns about the degree of influence China has on the U.S. economy." But the commission downplayed those worries, suggesting that China could hurt its own interests if it stopped lending money to America.

"The lack of alternatives and the potential detrimental impacts on China's economy make it unlikely that China would stop buying U.S. debt or liquidate its holdings altogether," the report read.