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China vows to hit back if targeted by U.S. on yuan

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littlekracker


China vows to hit back if targeted by U.S. on yuan
Langi Chiang and Ken Wills
BEIJING
Sun Mar 21, 2010 6:43am EDT


BEIJING (Reuters) - Beijing will retaliate if the United States declares China a currency manipulator and imposes trade sanctions, Commerce Minister Chen Deming said on Sunday, firing the latest salvo in a spat over the value of the yuan.


Chen again accused Washington of politicizing the issue ahead of an April 15 deadline for the U.S. Treasury to rule whether China is unfairly holding down its exchange rate to gain a competitive edge in global markets.

"The currency is a sovereign issue and should not be an issue to be discussed between two countries," Chen told the China Development Forum.

"We think the renminbi is not undervalued, but if the U.S. Treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do nothing. We will also respond if this means litigation under the global legal framework," he added.

Chen did not specify how Beijing might respond.

Political pressure is growing in Washington to declare China a currency manipulator, with some U.S. senators threatening to slap duties on Chinese products if Beijing does not allow the yuan, also known as the renminbi, to rise.

The head of the Asian Development Bank (ADB) on Sunday joined the chorus of calls for Beijing to abandon the peg of 6.83 yuan to the dollar imposed in mid-2008 to help China's exporters weather the global financial crisis.

In the three years before that, Beijing had let the yuan climb 21 percent against the dollar.

"Greater flexibility in the exchange rate of the yuan would be in the interests of the Chinese economy. Rebalancing is a big challenge and exchange-rate flexibility could contribute to making that process smoother over the years to come," ADB President Haruhiko Kuroda told Reuters.

While it was wrong to rely exclusively on the exchange rate to tilt the economy away from exports and toward consumption, a freer-floating yuan would also strengthen Beijing's control over monetary policy, Kuroda said on the sidelines of the forum.

"When and how should be decided by the Chinese authorities," he said of the switch back to a more flexible currency regime.

The International Monetary Fund and the World Bank both urged China last week to let the yuan resume its ascent.

Some U.S. legislators and think-tanks say the Chinese currency is undervalued by as much as 40 percent, causing imbalances in bilateral and global trade flows.

TRADE SURPLUS 'OVERESTIMATED'

But Chen accused Washington of overestimating the size of China's trade surplus with the United States, putting more pressure on the relationship between the world's biggest and third-biggest economies.

The defiant comments stood in contrast to a ministry statement on Friday that was widely interpreted as an attempt to bridge differences.

The ministry said then that it would send a vice minister to Washington this week to try to ease trade frictions, although it specifically noted that China's currency policy was off-limits.

Speaking on Sunday, Chen said any adjustment to the yuan's value would not by itself resolve global trade imbalances.

China's trade surplus increased while the yuan was gradually appreciating from 2005 to 2008, yet the surplus fell 34 percent last year even though the yuan marked time against the dollar. Chinese trade could even lurch into the red this month.

"A country's currency appreciation is very limited in helping to rebalance global trade," he said. "I personally expect that China could possibly have a trade deficit in March."

Chen called on all countries to oppose any form of trade protectionism, a theme that echoed an earlier speech by Vice Premier Li Keqiang. Neither official mentioned specific countries.

Vice Minister of Finance Wang Jun, also speaking at the forum, said it was not time yet to talk about exiting the economic stimulus program but added "we should actively study the exit strategy together" with other countries.

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