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China warns of trade war if U.S. bill passes

04 October 2011 15:07 (UTC +04:00)

China’s central bank and the ministries of commerce and foreign affairs accused Washington of "politicising" currency issues and putting the global economy at risk after U.S. senators voted on Monday to start a week of debate on the bill.

The response suggested China sees a greater risk from the proposed bill than it has in the past when U.S. lawmakers attempted to put forward similar legislation to speed up the pace of appreciation in the yuan, or renminbi.

Beijing made similar remarks last year after the House of Representatives passed a currency bill that later failed to make any further progress in Congress.

Tuesday’s coordinated salvo and the central bank’s warning of a trade war and a slowdown in China’s exchange rate reforms indicated Beijing was taking the latest currency bill more seriously.

"It is very rare for three different ministries of the country to refute something so quickly and strongly, showing how deeply the Chinese government is concerned about the yuan bill," said Wang Zihong, a researcher at the China Academy of Social Sciences, a top government think tank.

"The strong responses made by the Chinese government may also suggest that the possibility would be quite high this time that the United States will pass the final bill in the end and that Beijing is worried about the possible negative impact on China’s exports resulting from the legislation," he said.

U.S. Senate vote opened a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the U.S. government to slap countervailing duties on products from countries found to be subsidising their exports by undervaluing their currencies.

U.S. lawmakers, eyeing 2012 elections, said keeping China’s currency undervalued had cost American jobs and that a fairer exchange rate would help cut an annual trade gap Washington puts at more than $250 billion.

"China expresses its adamant opposition to this."

Ma urged U.S. legislators to "proceed from the broader picture of Sino-U.S. trade and economic cooperation" and "forsake protectionism".

He repeated Beijing’s position that it will continue to gradually reform its currency policy, "strengthening the flexibility of the renminbi exchange rate."

China’s exchange rate has long been a bone of contention between Beijing and Washington. The yuan has appreciated some 30 percent against the dollar since it was revalued in 2005, although critics say it is still valued too low and gives Chinese exporters an unfair advantage.

The emergence of China as the world’s fastest-growing major economy has led to often testy relations with the United States. The most recent tension was over U.S. plans for a $5.3 billion upgrade of the F-16 A/B fighter fleet of Taiwan, which Beijing considers to be a breakaway province.