China is not manipulating its currency after all, US Congress admitted issuing a statement that China has to abandon its currency peg to the US dollar or risks accusations of exchange rate manipulations. The restrained statement invoked criticism of the producers who would prefer a statement saying that China is in direct violation of the rules.

``I’m extremely disappointed that they’re not taking direct action against China,’’ Representative Benjamin Cardin, a Democrat from Maryland, said. ``What they do is hurting U.S. manufacturers and producers. It’s unfair.’’

Chu Maoming, a spokesman at the Chinese Embassy in Washington, reiterated that the nation will change its exchange rate on its own timeline. This revokes comments from Chinese Premier Wen Jiabao on May 16 who said that yuan valuation ``is the sovereign right of China’’ and that ``while we respect market forces, we won’t bow to foreign pressure.’’

Markets have speedily reacted to any indications from Chinese officials as to time of a possible yuan revaluation, including the fuss created by the incorrect translation of an article in Chinese governmental publication People’s Daily that reached the world through Bloomberg and roiled the markets before the misunderstanding was cleared up.

China has held its currency pegged to the US dollar at the rate of 8.28 yuan per dollar since the Asian financial crisis. This gave reason to the US to say that China is enjoying an artificial financial advantage in trade which contributes to the US current account gap.

US and China are in the middle of a dispute that concerns the reimposition of US curbs on imports of Chinese trousers, shirts and underwear that was loudly protested by Chinese authorities.
The revaluation of the yuan will have a drastic impact on the dollar exchange rate.

``While China’s 10 year long pegged currency regime may have at times contributed to stability, it no longer does so,’’ the Treasury report said. The artificial lowering of the yuan rate creates and attracts speculators to the nation.

Everybody realizes that China has no other way to go but revalue its currency, as otherwise the world nations will put more bans on its exports, removing the competitive advantage it enjoys now due to undervalued yuan. However, this revaluation will probably come quite unexpected and will be drastic as Chinese officials will use this method to ward off the inflow of speculative capital in the nation that is already fighting hard against overheating in its economy.