The Bush administration has declined to cite China for manipulating its currency to gain unfair trade advantages against the United States.

The finding announced Thursday came despite pressure in Congress for penalties because of America's growing trade deficit with China, which last year hit an all-time high of $256.3 billion, the largest deficit ever recorded with a single country.

In a report it is required to deliver to Congress every six months, the administration said China needed to address the "substantial undervaluation" of its currency compared with the dollar. But the report said China did not meet the technical requirements under the law to be designated as a currency manipulator.

The report noted that the Chinese currency, the yuan, has risen in value by 18.4 percent against the dollar since the Chinese government loosened its currency system in July 2005. However, American manufacturers contend the yuan is still undervalued by as much as 40 percent, making Chinese products more competitive in this country and U.S. goods more expensive in China.

Treasury Secretary Henry Paulson had hoped to use a new series of high-level talks with Chinese officials to get the country to move more quickly in addressing not only the currency issue but a number of other contentious trade issues. However, those talks so far have had only limited results.

Lawmakers and industry groups expressed disappointment in Treasury's decision.

"There is no doubt that China has made progress, but there is still a long way to go," said Sen. Charles Schumer, D-N.Y. "If you're worried about out current account deficit, the most important thing we could do is get the Chinese to fairly value their currency."

Schumer, who is co-sponsoring one of the bills seeking to prod China on the currency issue, expressed the hope that differences in two competing Senate measures could be reconciled soon so that the legislation could move forward.

The National Association of Manufacturers, one of the leading groups pushing the administration to take a tougher line on China, expressed disappointment that the administration had chose again to refrain from citing China as a currency manipulator, a designation that would trigger negotiations between the two countries over the issue.

"Everybody in the world knows that China is manipulating its currency," said Frank Vargo, NAM's vice president for international affairs. "Treasury is continuing to hide behind the fig leaf of contending it can't determine China's intent."

Both Sens. Hillary Rodham Clinton and Barack Obama announced earlier this month that they were joining as co-sponsors of legislation supported by Sens. Jim Bunning, R-Ky., and Debbie Stabenow, D-Mich., that would allow the administration to impose economic sanctions against countries such as China for currency manipulation.

While seeing this as a significant development that would guarantee that the issue would be debated in the fall presidential campaign, Vargo said it was unclear whether any legislation would get approved in Congress this year because of opposition against moving forward at a time when global financial markets are still unsettled. Continued...