China Says U.S. Yuan Legislation Will Hurt World Economy
China said a measure passed by the U.S. House of Representatives yesterday aimed at pushing up the value of the yuan will hurt the global economy if it becomes law.
The House of Representatives voted yesterday for a measure that would let domestic companies petition for duties on imports from China to compensate for the effect of a weak yuan. China said the legislation would do nothing to cut the U.S. trade deficit and only risk harming growth. The Senate won’t take up its version until after the November election, said Senator Charles Schumer, a New York Democrat.
“We firmly oppose the U.S. Congress approving such bills,” Foreign Ministry spokeswoman Jiang Yu told reporters today in Beijing. “We urge the U.S. congressmen to be clearly aware of the importance of China-U.S. trade and economic relations, resist protectionism so as to refrain from any damage to the interests of both peoples and people around the world.”
The 348-79 House vote highlights growing trade tensions between the world’s two biggest economies. The U.S. is enduring persistently high unemployment and a surge this year in the trade deficit with China, which rose 27 percent to $25.9 billion in July from a year ago.
House Ways and Means Committee Chairman Sander Levin yesterday said the bill “says very concretely is that we mean business” and will “send a message” to global leaders to make progress on currency values at a summit next month.
President Barack Obama’s administration, which hasn’t taken a position on the bill, acknowledged the sentiment. The vote “clearly shows lawmakers have serious concerns about this issue,” Treasury Department spokeswoman Natalie Wyeth said in an e-mail. Democrats were joined by 99 of the 178 Republicans on the vote.
China’s central bank pledged in a statement yesterday it will expand flexibility of the yuan, which has gained 2 percent since a two-year dollar peg was scrapped on June 19.
U.S. Treasury Secretary Timothy F. Geithner has called the appreciation inadequate, and economists such as C. Fred Bergsten at the Peterson Institute for International Economics in Washington say the yuan is undervalued by as much as 25 percent.
The yuan weakened today for the first time in 13 days, dropping 0.1 percent to 6.6933 per dollar as of 10:00 a.m. in Shanghai. The central bank set the reference rate for daily trade weaker for the first time in three days.
“The fixing shows the Chinese government’s attitude towards the vote,” said Liu Li-gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “China wants to show it won’t yield to any foreign pressure. It will determine the policy based on its own economic fundamentals.”
The yuan had gained 1.5 percent in the 11 trading days before the vote. That rate of appreciation hasn’t satisfied China’s critics in the U.S.
Obama said yesterday at an event in Des Moines, Iowa, that he is “pushing China about their currency” because the Chinese are managing the yuan “in ways that make our goods more expensive to sell.”
Chinese Commerce Ministry spokesman Yao Jian said China doesn’t undervalue the yuan to gain a trade advantage and the bill won’t eliminate the U.S. gap. He said the legislation violates World Trade Organization rules and said the U.S. deficit was a result of changes in the global supply structure.
“China has a trade surplus with the U.S., but huge deficits with a number of Asian countries and regions,” Yao said. One-sided trade restrictions won’t solve the imbalance and the U.S. should instead lift restrictions on exports and work more actively with China, he said.
China this year has run up a $145 billion trade surplus with the U.S., more than the U.S. deficit with the next seven- largest trading partners combined. That gap, combined with the drop in American manufacturing employment, the lack of appreciation in the yuan and this year’s congressional elections have focused lawmakers’ attention on the commercial relationship.
The U.S. Chamber of Commerce, retailers, apparel importers and financial firms opposed the currency bill, and wrote lawmakers before the vote saying passage may lead to retaliation against businesses with investments in China or exporters of farm and manufactured goods.
“There are real concerns about how effective this will be and whether it will induce China to change its currency regime,” Representative Kevin Brady, a Texas Republican, said during debate on the bill. “This is no substitute for a comprehensive China policy, and that’s been sorely lacking from this administration.”
Backers of the measure say some companies will benefit, and the goal is to prod China to raise the value of the yuan and getObama to put more pressure on the Chinese to act.
Obama pressed China’s Premier Wen Jiabao in a two-hour meeting at the United Nations Sept. 23 to increase the yuan’s value. Wen said a day earlier that a 20 percent increase in the currency would cause severe job losses and trigger social instability in China.
The legislation is H.R. 2378.
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