The Chinese aren't manipulators after all

Or so says Geithner today. The Treasury released its International Economic And Exchange Rate Policies report to Congress today. Very exciting reading, I know. Interestingly, in the very first paragraph of the report, the Treasury says:

Between 1988 and 1994, Treasury cited three economies (China, Korea, and Taiwan) several times each for manipulating their exchange rates...Since July 1994, no economy has been found to have met the standards identified in Section 3004 of the Act.

Well, isn't that special!? Geithner, after months of asseting that China is a currency manipulator, suddenly changed his mind. We discussed it here and there is no doubt that China manipulates its currency. Perhaps these "standards" referenced in the above quote highlight precisely why China is not technically a currency manipulator?

The 'Act' the quote above refers to is the Omnibus Trade And Competitiveness Act of 1988. Section 3004 instructs the President and Treasury to negotiate with any nation found to be manipulating its currency. The "standards" referred to are as such (emphasis mine):

The Secretary of the Treasury shall analyze on an annual basis the exchange rate policies of foreign countries, in consultation with the International Monetary Fund, and consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis.

As vague as these "standards" are, will someone explain to me how China does not fit this description? I'll quote from a Bloomberg article on the subject:

Nicholas Lardy, an economist specializing in China at the Peterson Institute for International Economics in Washington, said that while China's approach to financial management is "much more credible today" than it was during the Bush administration, "you'd have to be brain dead to say that this is a market-determined rate."

Geithner may not be "brain dead", but he is fast learning how international politics works and will no doubt be more genteel in his public comments on the subject. Score one for the Chinese this time.