China has denied US accusations that the yuan was significantly undervalued, after the US Treasury said the currency's rise so far was insufficient, but stopped short of labelling Beijing a currency manipulator.
The issue is a sensitive one in Washington because of China's overwhelming surpluses in trade between the countries.
If the US designates China as a manipulator it would be likely to lead to Washington issuing sanctions, risking a trade war between the world's top two economies.
But the Treasury avoided that, although it said that the rise of the yuan, or renminbi (RMB) over the past two years had been "insufficient", based on Beijing's huge foreign exchange reserves and the strong trade surplus.
Foreign Ministry spokesman Hong Lei denied the accusation. "In recent years the yuan has been approaching equilibrium level. There is no such thing as the yuan being significantly undervalued," he said.
"China will continue to press ahead with the reform of the yuan exchange rate regime in a self-initiated, controllable and gradual manner. We hope the US side will deal with trade issues, including the yuan exchange rate issue, appropriately, so as to maintain the sound and steady development of China-US trade relations."
In its twice-yearly finding to the US Congress the Treasury said the yuan had gained 9.3 per cent against the dollar between June 2010 and November 2012, and 12.6 per cent when inflation was taken into account.
But it said Beijing's foreign currency reserves, trade surplus and other factors "suggest that the real exchange rate of the RMB remains significantly undervalued and further appreciation of the RMB against the dollar and other major currencies is warranted."
It added that Beijing, which in 2010 pledged to allow the yuan to trade more freely, knew an appreciating currency was in its own interests.
The yuan hit a year low of around 6.39 to the dollar in July but has steadily climbed in recent weeks, hitting a fresh record high of 6.2223 to the dollar on Tuesday. In late afternoon trade yesterday it stood at 6.2273.
During the US presidential campaign, Republican candidate Mitt Romney pledged to label China a manipulator on his first day in office to show he would be tougher on the US's chief economic competitor than President Barack Obama.
Additional reporting by Reuters