China warns currency manipulator labelling could cause chaos

Beijing

CHINA'S central bank said on Tuesday that Washington's decision to label Beijing as a currency manipulator would "severely damage international financial order and cause chaos in financial markets".

Washington's decision to ratchet up currency tensions on Monday would also "prevent a global economic and trade recovery"m the People's Bank of China (PBOC) said in the country's first official response to the latest US salvo in the two sides' rapidly escalating trade war.

China "has not used and will not use the exchange rate as a tool to deal with trade disputes", the PBOC said in a statement on its website. "China advises the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path," it said.

The US currency accusation, which followed a sharp slide in the yuan on Monday, has driven an even bigger wedge between the world's largest economies and crushed any lingering hopes for a quick resolution to their year-long trade war.

The dispute has already spread beyond tariffs to other areas such as technology, and analysts cautioned that tit-for-tat measures could widen in scope and severity, weighing further on business confidence and global economic growth.

The US Treasury Department said on Monday that it had determined for the first time since 1994 that China was manipulating its currency, taking their trade dispute beyond tariffs.

The department referred to a PBOC statement on Monday as an open acknowledgement that it "has extensive experience manipulating its currency, and remains prepared to do so on an ongoing basis".

The US decision was driven purely by political motive to "vent its anger", said Global Times, an influential Chinese tabloid published by the ruling Communist Party's People's Daily.

China "no longer expects goodwill from the United States", Hu Xijin, the newspaper's editor-in-chief, tweeted on Tuesday.

The US decision to label China a manipulator came less than three weeks after the International Monetary Fund (IMF) said that the yuan's value was in line with China's economic fundamentals, while the US dollar was overvalued by 6 per cent to 12 per cent.

The US law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus; a significant trade surplus with the United States; and persistent one-way intervention in foreign exchange markets.

The PBOC said that it does not fit the criteria for the label.

Zhang Anyuan, chief economist of stock brokerage China Securities, said that it is "baseless for the US side to determine that there was exchange rate manipulation based on the change in the exchange rate of the RMB (yuan) on a single day".

After the labelling, it is possible that Washington "will introduce punishing measures that go beyond existing understanding of the situation", Mr Zhang said.

Chinese state media had warned that Beijing could use its dominant position as a rare earths exporter to the United States as leverage in the trade dispute. The materials are used in everything from military equipment to high-tech consumer electronics. Shares in some of China's rare earth-related firms surged on Tuesday amid speculation that the sector could be the next front in the trade war.

Beijing could also step up pressure on US companies operating in China, analysts said.

Beijing in June issued a travel advisory warning Chinese tourists about the risks of travelling to the United States, citing concerns about gun violence, robberies and thefts.

Air China said on Tuesday that it was suspending its flights on the Beijing-Honolulu route starting on Aug 27, following a review of its network.

In a further sign of deteriorating ties, China's commerce ministry announced overnight that its companies had stopped buying US agricultural products in retaliation against Washington's latest tariff threat.

"In the end, the United States will eat the fruit of its own labour," the PBOC said.

Chinese monetary authorities let the yuan fall past the closely watched level of seven yuan to the US dollar on Monday so that markets could finally factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.

The yuan has tumbled as much as 2.7 per cent against the US dollar over the past three days to 11-year lows after US President Donald Trump's sudden declaration last week that he will impose 10 per cent tariffs on US$300 billion of Chinese imports from Sept 1.

But it appeared to steady on Tuesday amid signs that China's central bank may be looking to stem the slide, which has sparked fears of a global currency war.

The offshore yuan fell to a record low of 7.1397 per US dollar on Tuesday before clawing back losses after the central bank said that it was selling yuan-denominated bills in Hong Kong, a move seen as curtailing short selling of the currency. REUTERS