The Bush administration warned China yesterday that it could be cited as a currency manipulator and face economic sanctions unless it moves...

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WASHINGTON — The Bush administration warned China yesterday that it could be cited as a currency manipulator and face economic sanctions unless it moves swiftly to overhaul its currency system.

The administration has been prodding China in earnest over the past two years to stop linking its currency, the yuan, to the U.S. dollar. Manufacturers and other critics, including Democratic and Republican lawmakers in Congress, contend that China’s currency system puts U.S. companies at a big competitive disadvantage and has contributed to the loss of U.S. factory jobs.

In China, central-bank governor Zhou Xiaochuan said no one should expect quick action. “Our measures will only come out after we have done a good feasibility study,” he said.

The department issued the warning as part of its twice-a-year report to Congress. It stopped short of finding that China — or any other major trading partner of the United States — was engaging in unfair currency practices.

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The administration said China could be branded a manipulator of currency if the country doesn’t switch soon to a flexible exchange system — something advocated not only by the United States but also by other economic powers.

“If current trends continue without substantial alteration, China’s policies will likely meet the statute’s technical requirements for designation,” the department’s report said.

U.S. manufacturers say China’s system has undervalued the yuan by as much as 40 percent. The weaker yuan makes Chinese goods cheaper in the United States and American products more expensive in China.

The report called China’s currency policies “highly distortionary” — posing a risk to, among other things, China’s trading partners and global economic growth.

The administration said it would monitor China’s progress on moving toward a flexible exchange system “very closely over the next six months” in advance of the Treasury’s next currency report that will be sent to Congress later this year.

Treasury Secretary John Snow, speaking to reporters, wouldn’t be pinned down on the timing of a possible designation of China should the country not move ahead as the United States wants it to. He also wouldn’t detail how high he would like to see China’s currency rise.

Snow did say, “It should be a real step — it should be something the world can see and know that China means business.”

U.S. manufacturers have pushed for China to be branded a currency manipulator, a designation that could ultimately lead to economic sanctions against that country.

Although National Association of Manufacturers President John Engler was disappointed that this finding wasn’t made, he welcomed the administration’s tough tone. “The language is about as hard-hitting as it can be without actually citing China,” he said.

The administration has come under increasing pressure as the U.S. trade deficit with China has soared to record levels. Last year it hit $162 billion, the biggest deficit ever recorded with any country.