100 yuan notes in Beijing
The Obama administration on Friday rejected calls within Congress to brand China a currency manipulator, but said its "significantly undervalued" currency was a key brake on global growth.
The US Treasury Department said China had not met the standards for manipulation of the yuan, also known as the renminbi, to gain an unfair competitive trade advantage. Such a distinction could pave the way for retaliatory sanctions, reports AFP.
"The available evidence suggest the RMB remains significantly undervalued, and we believe further appreciation of the RMB against the dollar and other major currencies is warranted," the Treasury said in its semi-annual report to Congress on exchange-rate policies.
The Treasury said it would continue to "closely monitor" the pace of the yuan's appreciation and "press for policy changes" to boost China's exchange-rate flexibility.
Beijing's tightly managed currency policy has triggered huge trade deficits in the United States, fueling a long-running source of friction between the world's two largest economies.
Critics in Congress accuse China of keeping the yuan artificially weak to flood the US market with cheap Chinese imports that have wiped out US jobs.
This year it is a hot-button campaign issue as Democratic President Barack Obama seeks re-election in November against the presumptive Republican candidate Mitt Romney.
With the fragile US economy at the top of voter concerns, Romney and some lawmakers have been calling for retaliatory sanctions against China, accusing Obama of failing to protect American jobs as the economy struggles to recover from the Great Recession.
The Treasury explained it declined to brand China a currency manipulator in part because of the yuan's appreciation against the dollar since June 2010 and a decline in its massive current account surplus, a broad measure of trade.
It also cited "China's commitments in the G20 and the US-China Strategic & Economic Dialogue to move more rapidly to a more market-determined exchange rate system."