The announcement ends the standoff between Washington and Peking over China's Most Favoured Nation status - in effect, ordinary trade relations - which has grown since Mr Clinton made MFN renewal dependent on progress in human rights.
Mr Clinton said he decided to uncouple human rights from trade status because 'I believe, based on intensive efforts over the last few weeks, that we are far more likely to have human rights advances when it is not under the cloud of annual review of the MFN.'
Although Mr Clinton said the US had won various concessions from China over prison-made goods and Tibet, the administration has retreated from its earlier position. China has made clear it will not make concessions under pressure.
The US business community has pushed Mr Clinton not to jeopardise its position in China, to which it exports dollars 8bn ( pounds 5.3bn) of goods and exports dollars 31bn. Mr Clinton said the US and China had common concerns over a nuclear-free Korean peninsula.
Mr Clinton said he had received a letter from the Secretary of State, Warren Christopher, saying the Chinese had not made significant progress on human rights.
But he denied that he was caving in to lobbying by American business.
'I am moving, therefore, to delink human rights from the annual extension of Most favoured Nation trading status for China,' he said. There has been a growing consensus in Washington that the annual renewal of MFN was a blunt instrument which poisoned relations with China without producing compensating benefits. The Chinese government has shown every sign of regarding the review as an empty threat and believing that the US would not dare start a full-scale confrontation with Peking.