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China warns that US currency legislation could hurt trade ties
China angrily slammed a new US bill Thursday that targets the Yuan due to the Washington’s belief that authorities in China are artificially undervaluing their currency to promote exports. Beijing warned that the US action could hurt trade ties.
AFP - China on Thursday rejected US legislation seeking to punish Beijing for allegedly manipulating its currency, warning that pressure on the yuan issue could "severely damage" trade ties.
Beijing also said the bill -- overwhelmingly approved by the US House of Representatives on Wednesday -- violates World Trade Organisation rules, and insisted it has not deliberately undervalued its currency.
Angry US lawmakers, who accuse Beijing of keeping the value of the yuan artificially low to give its exporters an unfair competitive edge, blamed the weak yuan for the loss of US jobs, just weeks ahead of key midterm elections.
"We firmly oppose the US Congress approving these bills," Chinese foreign ministry spokeswoman Jiang Yu told reporters.
"Exercising protectionism against China under the excuse of the renminbi exchange rate will only severely damage China-US trade and economic ties and have a negative impact on the two countries' economies and the world economy."
The legislation was passed even as the United States announced a resumption of military ties with China after a 10-month break, saying the two powers both wanted to avoid miscalculations in an increasingly tense region.
In Beijing, commerce ministry spokesman Yao Jian said the US bill was "inconsistent with relevant rules of the World Trade Organisation to conduct an anti-subsidy investigation based on exchange rate reasons".
"China has never undervalued its currency in order to gain a competitive advantage. The US cannot use its trade deficit with China as an excuse to adopt trade protectionist measures," Yao said, state media reported.
The House bill calls on the US government to consider Beijing's currency policy as an improper trade subsidy, and expands the powers of the Commerce Department by allowing it to slap retaliatory tariffs on Chinese goods.
The chamber passed the bill by a 348-79 margin, one of its strongest showings against China in years, fuelled by voter anger at the struggling economy and joblessness near 10 percent ahead of November 2 elections.
Some critics say the yuan could be undervalued by as much as 40 percent.
"The US-China relationship is an important one in every way -- culturally, politically, diplomatically, economically, commercially -- but we need to have them play by the rules," said Democratic House Speaker Nancy Pelosi.
The US Senate has signalled it will take up a companion bill after the elections, but the legislation's fate is unclear and President Barack Obama has not formally taken a position on whether he supports it.
Ahead of the vote, Obama said at a campaign-style event in Iowa that the yuan was "undervalued" and was "a contributing factor" to the yawning US trade deficit with China -- the world's second biggest economcy.
"People generally think that they are managing their currency in ways that make our goods more expensive to sell and their goods cheaper to sell here," he said.
China pledged in June to loosen its grip on the yuan, which had been effectively pegged at about 6.8 to the dollar since mid-2008. Since then, the currency has gained less than two percent against the greenback.
The central bank on Thursday set the central parity rate -- the middle of the allowed trading band for the currency -- at 6.7011 to the dollar. The yuan can move up or down 0.5 percent from that rate during the trading day.
That was weaker than the 6.6936 rate set Wednesday, which was the strongest against the greenback since June's pledge.
Last week, before meeting Obama, Chinese Premier Wen Jiabao rejected a drastic appreciation of the yuan, warning that it would cause Chinese companies to go bankrupt and workers to lose their jobs.
Ahead of the House vote, China's central bank issued a statement pledging to increase the flexibility of the yuan and "gradually improve the exchange rate setting mechanism" -- near-identical to the wording it used in June.
A group representing US businesses in China criticised the bill, saying it puts thousands of American jobs in export-related industries at risk and would not spur growth in the world's biggest economy.
"Blaming China won't help the US economy but this legislation may cost American jobs," John Watkins, chairman of the American Chamber of Commerce in China, said in a statement.
"We call on the US Senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."