The U.S. has once again declined to label China a currency manipulator, but both countries are beginning to run out of wiggle room on the yuan. Treasury Secretary John Snow has spoken in the past about holding China's "feet to the fire" over the yuan - now it's Snow and the Bush administration that are feeling most of the heat. As expected, the Treasury Department found no major U.S. trading partner met the criteria for designation as a manipulator of its currency in its twice yearly report to Congress on international economic and foreign exchange policy. China critics on Capitol Hill weren't slow to voice their disappointment with the finding, published late Monday afternoon. Unless Treasury can in the near future point to significant enhancements to the Asian country's exchange rate system, the Bush administration could very well face a heavy political battle with U.S. lawmakers determined to see a big appreciation of the yuan versus the dollar. To avoid a hotfoot compliments of Congress, Chinese leaders will have to hasten the pace at which they are introducing the long-promised flexibility into the yuan's regime. The foreign exchange report on the first half of 2005 and the statement from Snow that accompanied it contained a significantly tougher tone than the May report and appeared to be more precise about what Treasury wants to see happen. In May, the report called for action from China but also gave a long list of reasons why it was in the Asian country's interests to introduce a more flexible currency. This time, the administration was blunter, listing greater currency flexibility from China as a "critical condition" for addressing global imbalances. The report acknowledged that China's July 21 revaluation opened the way for a more flexible currency regime, but labeled China's operation of the new system "highly restricted." Tougher Tone In Current Report "Distortions and risks previously identified still persist, as do the constraints thus imposed on exchange rate flexibility in the region," Treasury said. In his statement, Snow added that China's progress has been "limited and far too slow" The report was candid in warning that if China does not introduce greater exchange rate flexibility in coming months, it may force the administration's hand. Earlier this month, Chinese "President Hu (Jintao) told President Bush that China would unswervingly press ahead with reform of its exchange rate mechanism. The Chinese authorities should do this by the time this report is next issued. Treasury will monitor movements of the renmnibi (yuan) and the authorities' progress in allowing significant exchange rate flexibility before the next report," the report said. The report also hinted that what Treasury wants to see happen next is for the yuan to be allowed more room to steadily appreciate rather than another one-off 2% revaluation. Treasury noted that China has not "fully utilized" the flexibility allowed by the currency regime, which permits the yuan to fluctuate in a daily plus-or-minus 0.3% band against the dollar.