At the same time, some analysts said the move runs the risk of escalating a trade war between the two economic superpowers if the U.S. stance is seen in Beiiing as too aggressive. Chinese Commerce Ministry spokesman Yao Jian was quoted by Chinese state-run media as saying that the U.S. legislation targeting China and its currency policy was a breach of World Trade Organization rules.
“Carrying out anti-subsidy investigations on the basis of currency is against relevant rules of the WTO,” Yao Jian said, according to a Kyodo report.
The comment came after the U.S. House of Representatives voted Wednesday 348 to 79 in favor of a bill, which supporters say will help U.S. industries hurt by undervalued currencies, such as the Chinese yuan. Read full story on the yuan bill’s approval in the House.
Meanwhile, the American Chamber of Commerce in China, or AmCham-China, wrote in a statement that it opposes the legislation, saying that “if enacted into law, the Chamber doesn’t believe the bill will be effective in achieving its objectives and would fail to create significant U.S. job growth.”
On the contrary, the legislation puts at risk thousands of existing export-related U.S. jobs, AmCham-China said.
“Blaming China won’t help the U.S. economy but this legislation may cost American jobs,” said AmCham-China Chairman John Watkins. “We call on the U.S. Senate to thoroughly review the proposed legislation, and we hope it doesn’t move forward in the legislative process.”
Tread carefully
Analysts said that while U.S. pressure might push Beijing to allow the yuan to appreciate, Washington will have to tread carefully. “It’s hard to deny that [the recent yuan appreciation] has been impacted by the pressure coming out of Washington. Obviously, Beijing doesn’t want to make a direct link between the two, but it does seem hard to deny that,” said Royal Bank of Canada economist Brian Jackson.
“If Washington is too aggressive, then they risk that Beijing will push back. The best way is to try to take a conciliatory approach,” Jackson said. “Pressure from the U.S. can help speed things up, but can also run the risk of derailing the [yuan appreciation] process if Beijing feels it’s being pushed into a corner.”
China allowed the yuan (U.S.:USDCNY) to gradually appreciate against the greenback in June, after holding the currency steady in a tight range around 6.82 yuan to a U.S. dollar for many months in the wake of the global financial crisis, in order to protect the nation’s exporters and the millions of jobs they provide.
On Thursday, China sought to push the yuan lower, setting the midpoint of the currency’s trading range at 6.7011 yuan to the dollar, up from 6.6936 yuan Wednesday.
But RBC’s Jackson said a stronger yuan was in China’s best interests, as it would alleviate inflationary pressures and help rebalance China’s economy in favor of domestic consumption.
Dariusz Kowalczyk, senior economist and strategist at Credit Agricole, wrote in a note to clients that the U.S. bill was adding to the negativity in the markets Thursday.
“While practical impact of the law is likely to be minimal, and it would still have to be confirmed by the Senate in November, it does increase the odds of a trade war, which would be negative for global growth outlook,” he wrote.
Source: http://www.marketwatch.com/story/story/print?guid=2231B460-CC3A-11DF-ACD0-00212804637C
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