(Adds China Foreign Ministry comment)
By Lindsay Dunsmuir
WASHINGTON, Oct 19 (Reuters) - The United States called on China on Monday to allow its currency to appreciate further as a crucial support to the world’s second-biggest economy in rebalancing its economy.
In the Treasury’s semi-annual report on economic and currency policies of major trade partners, the United States also said that the yuan, officially known as the renminbi, remains below its “appropriate medium-term valuation.”
The language is a shift from the previous report in April, when the United States said the Chinese currency was significantly undervalued.
The Treasury, in its regular scorecard, did not label any major trading partner a currency manipulator but called on countries with current account surpluses, which include Germany and South Korea, to do more to boost flagging global growth.
The roughly $50 per barrel decline in the price of oil is shifting income of over $600 billion annually from oil exporters to oil importers, the Treasury said.
The Treasury estimated that non-FDI capital outflows from China likely hit $520-530 billion in first eight months of this year, including $200 billion in August alone.
“Market factors are exerting downward pressure on the RMB at present, but these are likely to be transitory,” it said.
Worries over China’s economic slowdown and possible interest rate rises by the U.S. Federal Reserve have led to a wave of capital outflows that intensified after Beijing’s surprise devaluation of the yuan on Aug. 11.
In a bid to stabilize the currency afterwards, China’s central bank and commercial banks sold a record net 761.3 billion yuan ($119.85 billion) of foreign exchange in September, data showed on Friday, as capital outflows weighed on the yuan.
Traders believe the central bank intervened forcefully both in the domestic and global yuan markets.
U.S. Treasury Secretary Jack Lew has been urging China to allow its currency, the yuan, to float more freely.
Many U.S. lawmakers have repeatedly complained that China deliberately undervalues its currency to gain a competitive advantage in international markets. The last time the Treasury labeled a country a manipulator was China in 1994.
“We will continue to steadily advance yuan exchange rate mechanism reform according to relevant principles,” Chinese Foreign Ministry spokeswoman Hua Chunying told a regular news briefing on Tuesday.
Before the devaluation, the currency had been slowly appreciating as the Chinese government sought to support its aim of shifting the economy’s main engine from exports to domestic demand.
“Further currency appreciation is key...and will support the purchasing power of Chinese consumers and help shift production towards non-traded goods and services,” the report said.
China is pushing for the yuan to be included in the International Monetary Fund’s benchmark currency basket as a means of reducing its dependence on the dollar, but policymakers have yet to decide if it has met all the market-based criteria.
Elsewhere in the report, the United States again called for South Korea to curb currency interventions and repeated that the won appeared to be “undervalued” and should be allowed to appreciate over the medium term.
The U.S. Treasury also urged Japan to recalibrate fiscal policy to support economic growth and reduce reliance on yen depreciation to boost exports. (Reporting by Lindsay Dunsmuir, Krista Hughes and Kevin Yao and Michael Martina in BEIJING; Editing by Diane Craft & Kim Coghill)