The Bush administration said Tuesday that China did not meet the technical requirements of a country that was manipulating its currency to gain unfair trade advantages.
However, the administration said, "more flexibility in China's exchange rate will help it achieve more balanced growth" and promote a number of other outcomes that would be economically beneficial.
But in a report it is required to deliver to Congress every six months, the administration said that no country met the "technical requirements for designation" as a currency manipulator.
Such a designation could trigger negotiations that could ultimately lead to trade sanctions.
The latest report was released four days after a Cabinet delegation led by Treasury Secretary Henry M. Paulson Jr. concluded high-level talks in Beijing aimed at resolving the root causes of the huge and growing U.S. trade deficit with China.
The report did not please China's harshest critics in Congress.
"The administration continues to use technical and legalistic dodges to avoid saying what everyone knows to be true: The Chinese manipulate their currency. It's as plain as the nose on your face," Sens. Charles E. Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) said in a statement.
"If the administration still won't call China a manipulator, how can we ever expect them to get China to play fair?" they asked.
Schumer and Graham were the lead sponsors of legislation last year that would have imposed a 27.5% tariff on all Chinese imports if Beijing did not move more quickly to allow its currency to rise against the dollar.
The administration opposed the legislation, saying it would raise the price of Chinese imports to American consumers.
Sen. Max Baucus (D-Mont.), calling the requirement for a report every six months no longer useful, said he planned to pursue legislation that would mandate a different approach in the new Congress.
Baucus, who next year will head the Senate Finance Committee, which has jurisdiction over trade issues, has proposed legislation that would offer milder sanctions against countries with "misaligned" currencies.
The U.S. trade deficit with China is expected to easily surpass last year's $202-billion record, the highest trade gap the United States ever recorded with a single country.
The administration is under heavy political pressure to do something about trade deficits, which critics charge have been a major factor in the loss of nearly 3 million manufacturing jobs since President Bush took office in 2001.
No country has been named as a currency manipulator in the Treasury Department report since China was cited in 1994 by the Clinton administration.
Although the Bush administration in the past has hinted that it was getting close to naming China, Tuesday's report seemed to take a more muted tone in its criticism in keeping with Paulson's efforts to lessen outward pressure on Chinese officials in the belief that doing so would produce better results.
American manufacturers contend that China undervalues its currency by as much as 40% against the dollar, making Chinese goods cheaper for American consumers and American products more expensive in China.