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Asia-pacific

US House passes currency bill aimed at China's yuan

Video by Elena CASAS

Text by News Wires

Latest update : 2010-09-30

The US House of Representatives has approved legislation designed to step up pressure on China to let its currency rise faster, opening the door to extra duties on Chinese goods entering the US. Beijing said Thursday that the bill violated WTO rules.

 

REUTERS - China on Thursday hit back at a bill passed by the U.S. House of Representatives aimed at pressuring Beijing to let its currency rise faster by branding it in violation of world trade rules, but Beijing stopped short of threatening any retaliatory actions.
 
China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.
 
The bill allows the U.S. Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.
 
In response, the official Xinhua news agency quoted China's commerce ministry spokesman, Yao Jian, as saying: "Starting a countervailing investigation in the name of exchange rates does not conform with relevant WTO rules."
 
The lawyer-like statement was a measured response compared with China's reactions in other disputes this year, including U.S. weapons sales to Taiwan, when Beijing froze military contacts with the United States.
 
"I don't think China will have any dramatic reaction to this bill's passing," said Jin Canrong, a professor of international relations at Renmin University in Beijing, who specialises in U.S.-China relations. "China wants to preserve the stability of overall relations."
 
The bill would need to be passed by the Senate -- far from certain -- and signed by President Barack Obama to become law.
 
The American Chamber of Commerce in China voiced its opposition to the Chinese currency legislation in an email, saying "if enacted into law, the chamber does not believe the bill will be effective in achieving its objectives and would fail to create significant U.S. job growth".
 
Lower yuan midpoint
 
China's central bank fixed the yuan's daily mid-point versus the dollar at a weaker level on Thursday.
 
Ahead of the U.S. vote, the People's Bank of China had said China would increase the flexibility of the yuan and improve the way it manages the exchange rate with reference to a basket of currencies of the country's trading partners.
 
The PBOC issues mid-point data through the Shanghai-based interbank market, the China Foreign Exchange Trade System (CFETS), on the market's website, www.chinamoney.com.cn. The yuan may rise or fall 0.5 percent against the dollar from its mid-point each day.
 
Despite the weaker mid-point, the yuan has now gained almost 2.2 percent against the dollar since Beijing scrapped a 23-month-old peg to the dollar on June 19 and said it would let the currency resume a managed float. Nearly all of the increase has occurred this month.
 
The bill could fan the flames of a long-running dispute with China over trade and jobs.
 
It passed with solid bipartisan support just over a month ahead of mid-term elections as voters focus on the still-struggling U.S. economy and persistently high unemployment.
 
Many lawmakers both in the House and the Senate have complained for years that China's policies create an unfair trade advantage, but this is the strongest step yet.
 
The bill passed by a vote of 348-79.
 
Any vote in the Senate, however, won't come until after congressional elections on Nov. 2 when the U.S. political landscape could be greatly changed.
 
"China's persistent manipulation of its currency contributes to the outsourcing of American jobs and poses a very serious problem that requires real action," said House Ways and Means Committee Chairman Sander Levin.
 
Quick yuan moves unlikely
 
Chinese analysts were skeptical that the legislation would produce any quick movement on the yuan.
 
"This is not something like, 'I will do something since you have threatened me,'" said Zuo Chuanchang, a researcher with a think tank under China's National Development and Reform Commission (NDRC).
 
"If you are looking for another one-off revaluation of 3 to 5 percent, or are expecting a 20 percent rise in the yuan over a year ... forget it," added Fu Bingtao, an economist with the Agricultural Bank of China.
 
Before the House vote, China's central bank reaffirmed its pledge to increase the flexibility of the yuan and improve the way it manages the exchange rate.
 
Obama and Chinese Premier Wen Jiabao talked about China's currency and huge trade surplus with the United States on the sidelines of the U.N. General Assembly last week.
 
China, the largest foreign buyer of U.S. government debt with holdings of nearly $847 billion as of July, also says its big trade surplus with the United States is due to Americans saving too little and no longer making the goods that China sells.
 
While Obama has not taken a position on the legislation, House Majority Leader Steny Hoyer said lawmakers worked with the White House to ensure the bill did not violate WTO rules.
 
Treasury Secretary Timothy Geithner told Congress two weeks ago that Washington would work with Group of 20 nations to push China for faster appreciation, but several allies expressed reluctance to join the effort. G20 leaders are set to meet in Seoul on Nov. 10-11.
 
China and the United States have a difficult but vital diplomatic relationship, not least in dealing with nuclear threats from Iran and North Korea.
 
In recent months, Washington and Beijing have also sparred over Chinese government procurement policies, Internet censorship, U.S. arms sales to Taiwan and U.S. sympathy for the Dalai Lama, the exiled Tibetan spiritual leader.

 

Date created : 2010-09-30

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