China to US on currency bill: I wouldn't do that if I were you
The US Senate passed a currency bill that would punish countries that subsidize their exports by maintaining an artificially low exchange rate. China called such a law a 'lose-lose' for both sides.
In this Sept. 30 photo, visitors look at an artwork depicting a 100-yuan Chinese currency at the 2011 Chengdu Biennial in Chengdu in southwestern China's Sichuan province. Reflecting growing anger in the US about the loss of jobs to China, the Senate passed a bill that would punish countries that subsidize their exports by maintaining an artificially low exchange rate.
AP
Beijing
China left no doubt Wednesday as to what it thought of a new US Senate bill aimed at forcing Beijing to strengthen the value of its currency: The Central Bank devalued it as much as it could.
The bill, passed Tuesday evening, 鈥渨ill not solve US economic and employment problems and will only disturb 鈥� efforts to promote world economic recovery,鈥� said Chinese Foreign Ministry spokesman Ma Zhaoxu in a statement.
Reflecting growing anger in the US about the loss of jobs to China, the Senate passed a bill that would punish countries that subsidize their exports by maintaining an artificially low exchange rate. Washington has long been pressing Beijing to let its currency rise, making US goods cheaper in China and thus helping US exports.
Administration officials say they support the bill鈥檚 goals, but worry that it might violate US obligations under World Trade Organization rules. The bill is not expected to pass the House of Representatives, where Speaker John Boehner has called the legislation 鈥渄angerous.鈥�
China: Exchange rate is not the problem
In a research paper published Wednesday, the Chinese Central Bank insisted that the Chinese currency, the yuan, 鈥渋s gradually approaching a reasonable and balanced level.鈥� In a managed process, the bank has strengthened the yuan by 30 percent since 2005, but this has not prevented the US trade deficit with China from widening.
鈥淭he yuan exchange rate is not the major reason for the trade imbalance鈥� with the US, argued the paper, adding that 鈥減oliticizing the exchange rate will not solve the savings insufficiencies, trade deficit, and high unemployment in the US.鈥�
Underlining its 鈥渇irm opposition鈥� to the Senate vote, the Central Bank guided its currency 0.5 percent below its daily reference rate Wednesday, the maximum devaluation possible in one day under rules governing the exchange rate.
Chinese officials have warned that the protectionist moves the Senate bill would require, such as countervailing US duties on Chinese imports benefiting from an artificially low yuan, would provoke retaliation.
A trade war?
鈥淪hould the proposed legislation be made into law, the result would be a trade war between China and the US and that would be a lose-lose situation for both sides,鈥� Deputy Foreign Minister Cui Tiankai told reporters earlier this week.
Chinese economists say Beijing is reluctant to allow more than a gradual strengthening of the yuan for fear of putting export-oriented Chinese companies out of business and their workers out of a job.
Rising unemployment would threaten social unrest that would scare the government into more conservative economic policies, suggests Lu Zhengwei, chief economist at the Industrial Bank Co. in Shanghai.
鈥淭hat would derail the structural adjustment鈥� the authorities must implement to solve the exchange rate problem once and for all, basing China鈥檚 economic growth on domestic consumption, not on exports, says Mr. Lu. Even in the best of cases 鈥渢his project will take several years,鈥� he warns.