China as “currency manipulator”

On August 23, President Donald Trump tweeted that American companies are ordered to leave China or return to the US to set up factories.

A day later, America announced that it would raise tariffs on about $550 bln worth of Chinese exports to the US by an additional 5%.

Forcing US companies to leave China and increasing tariffs on Chinese products are part of the US pressure tactics. These acts have violated the consensus of the heads of state of China and the United States, damaged the principle of mutual respect, equality and mutual benefit, and undermined the multilateral trading system and the international trade order.

It is not constructive in any way and no one, not even the US itself, stands to gain.

The US stock market and commodity prices have responded to the news with major falls.

American people from various sectors have expressed opposition to these remarks and the international community has voiced concern about such pressuring.

China opposes and rejects such sheer bullying and pressuring tactics in trade. Increasing tariffs and decoupling the Chinese and American economies are by no means the right prescription to ease the trade friction.

Even less likely to offer the US a way out of it problems. The US should heed the views from various sectors, balance its gains and losses, and come to prudent rather than hotheaded decisions. If the US were to further escalate frictions, China will continue to take resolute measures to safeguard its legitimate rights and interests.

According to the three criteria for the definition of currency manipulator set by the US Treasury itself, the US knows very well that China is not manipulating the RMB. It also knows very well why it would force the label on China.

The Chinese Ministry of Foreign Affairs and People’s Bank of China responded to the August 5 US treasury announcement labelling China as a “currency manipulator”.

On August 9, the IMF published its annual report on the Chinese economy, reiterating that China’s exchange rate is “broadly in line with fundamentals”, that is, the RMB is neither over-valued nor under-valued. The IMF also supports China’s efforts for further exchange rate flexibility.

Reviewing fluctuations of the exchange rate from the beginning of this year to August 2, The RMB has weakened 0.9% against the US Dollar, while the Australian Dollar and the Euro weakened 2.7% and 3.1% against the USD, respectively.

This political decision by the US is yet another tool to exert pressure on China.

One may be getting used to the US withdrawing from treaties and breaking rules in the international arena. But it is beyond one’s expectations that the US would even disregard its own rules.

Former US Treasury Secretary and Harvard University Professor Lawrence Summers also believes the designation of China as currency manipulator is without sound basis. This will not only damage the credibility of the US government but also bring risks of recession to the US economy.

The RMB is traded in a floating exchange rate, which is determined by market demand and supply. By labelling China a currency manipulator, the US has extended trade frictions between US and China to the currency sector, which would only escalate tensions, bring new uncertainties to negotiations, trigger financial market volatility, and greatly hinder the recovery of global trade and economy.

No wonder some analysts believe that the US is the root for the weakening of the world economy.

Current Chinese economy performance

China’s economic fundamentals have remained stable with good momentum for growth in the first half of 2019.

Its economic structure continued to optimise and upgrade and has made positive