‘Currency manipulator’ label of US groundless: Analysts
By Li
Qiaoyi, Wang Yi and Zhang Hongpei
Following
US President’s series actions which are leading to global trade and financial
chaos, the US Treasury moved to name China a “currency manipulator” on August 5,
which was denounced by China’s central bank and Chinese economists as
groundless and self-destructing.
The unwarranted
accusation, made after the yuan weakened against the greenback, sets the stage
for the US to brandish its tariffs weapon, analysts said. They believe China
would stay unaffected by US actions that would obstruct bilateral trade talks,
and push ahead with financial opening.
Both the
onshore and offshore yuan breached the 7 mark against the US dollar for the
first time in more than a decade on Monday, August 5. The yuan’s weakness
continued Tuesday.
The yuan’s
daily fixing rate weakened by 458 basis points to 6.9683 against the dollar on
August 6. In China’s spot foreign exchange market, the yuan is allowed to rise
or fall by 2 percent from the central parity rate each trading day.
A few
hours after US President tweeted, “China dropped the price of their currency to
an almost historic low. It’s called ‘currency manipulation,’” on August 5,
Treasury Secretary Steven Mnuchin announced the currency manipulation
designation in a statement on the Treasury’s website.
Mnuchin
will engage with the IMF to “eliminate the unfair competitive advantage created
by China’s latest actions,” according to the statement. The IMF has yet to
comment.
There is
no such issue as exchange rate manipulation, as the yuan exchange rate is by
nature determined by market supply and demand, the People’s Bank of China
(PBC), the country’s central bank, said in a statement on August 6.
“A
capricious act of unilateralism and protectionism, it will severely undermine
international rules and have material impacts on the global economy and
finance,” said the PBC.
US
stocks plummeted on Friday, August 5, after the US administration announced new
tariffs on China. The administration wanted to deflect criticism against it by
finding a scapegoat like China, labeling the latter as a “currency manipulator,”
said Guan Tao, a former senior official at the State Administration of Foreign
Exchange.
The
Trump administration threatened to impose 10 percent in tariffs on another $300
billion in Chinese goods. China then vowed countermeasures to safeguard its
core interests, saying that the country will not accept any threat and
blackmail, nor “make any concessions” on issues of principle.
“The US
move is random and groundless, which will not be approved by the IMF,” Guan
told the Global Times on August 6.
In the
IMF’s just-concluded Article IV consultation, the fund said that the yuan was
broadly in line with the fundamentals, the central bank said, reiterating that
China has kept its commitments of not resorting to devaluation for competitive
purposes, though the US has continued to escalate the trade conflict since
early 2018.
“China
has never used and will not use the yuan exchange rate as a tool to deal with
the trade frictions,” said the statement, reiterating the stance of PBC
governor Yi Gang the previous day.
The US
Treasury statement cited a portion of a post by China’s central bank on the
same day to substantiate its claim that China is experienced in manipulating
its currency.
The
portion it quoted narrates the central bank’s push for continued innovation and
the enrichment of China’s policy toolbox to fight against short-term
speculative bets and stabilize market expectations, which was nonetheless
claimed by the US Treasury to be an open acknowledgement of the central bank’s
currency manipulating moves.
“Labeling
another country a currency manipulator is unjustified. The US doesn’t have the
right to make such a wanton claim,” Dong Shaopeng, an adviser of the China
Securities Regulatory Commission, told the
Global Times.
The US
has been using this to disrupt China’s economy and financial system since 2004.
“It’s a groundless frame-up and pure bullying act,” Dong said.
In May
this year and October 2018, the Trump administration declined to label China a
currency manipulator. China was labeled a manipulator between 1992 and 1994.
“Such a
label is not consistent with the quantitative criteria set by the US Treasury
itself for the so-called ‘currency manipulator,’” PBC said on August 6.
The US
Treasury’s criteria to judge whether its trading partners are engaging in
currency manipulation include a material current account surplus, which has
been lowered to 2 percent of GDP from the previous 3 percent.
China’s
current account surplus stood at 1.55 percent of its GDP in the first quarter,
lower than the ratcheted-down number, according to Wu Jinduo, head of fixed
income at the research institute of Great Wall Securities, citing data from
China’s foreign exchange regulator.
The
criteria, essentially subjective and vague, have turned out to be another US
weapon together with its trade tariffs threats, but the accusation appears to
be failing, said Wu.
Ulterior motive
In a
note sent to the Global Times on August
6, strategists at DBS Group Research said, “Naming China a currency manipulator
could open the door for US tariffs to eventually increase to more than 25
percent on Chinese goods.”
Apart
from the manipulation designation, Trump’s election campaign pledge was to lift
import tariffs to 45 percent on China, according to the note, estimating the
risk to be skewed to the upside for the dollar versus yuan as well as the
dollar versus emerging Asian currencies.
But as
Lynda Zhou, equity portfolio manager of Fidelity International, said in a
research note sent to the Global Times
on August 6 a weak yuan, albeit likely to stem overseas expansion, should augur
well for Chinese companies “as exports are still a big, albeit declining, part
of the economy.”
“With
the exception of some airlines and Hong Kong-listed property developers, there
are few US dollar loans held by Chinese companies. So from a foreign currency
debt point of view, the risks of a currency mismatch on the balance sheet are
very low,” Zhou said.
The
Treasury announcement on Tuesday, August 6, will give rise to market
volatility, the PBC said Tuesday, adding it will cut into the recovery of the
global economy and ultimately hurt US interests.
“The
Chinese side urges the US to rein in its horse at the edge of the cliff, turn
back from this wrong path and return to a rational and objective track,” the
central bank said.
Global
financial markets have taken a hit from the US’ unruly moves.
Stock
markets across the Pacific recorded big losses. The Dow lost nearly 800 points
to close below 26,000 points on August 5, suffering its worst trading day of
the year.
“Over
the short term, global markets will be mired in panic over an extension of the
trade war into a currency war,” Wu said, adding that the markets would
gradually calm down, although yields will decline and fluctuations would
increase.
Financial opening
China,
for its part, was advised not to overreact, Wu said, noting the nation should
continue on its reform path.
In a
fresh sign of China’s unswerving push for financial opening-up, global
financial messaging system SWIFT launched a wholly foreign-owned entity in
Beijing on August 6.
As China’s
capital market is about to be fully opened, the launch of the wholly owned
entity is an inevitable outcome which represents a significant milestone in
SWIFT’s global development, Daphne Huang, SWIFT’s head of China, told
reporters.
The new
entity will denominate and pay products and services in yuan, marking the
system’s acceptance of the yuan as the third global currency following the US
dollar and euro, according to Huang, in a move that would help the yuan move a
step further in internationalization.
Guan
said the US won’t resort to specific measures immediately and the impact of
China being labeled is limited. “There will be negotiations between the two
countries on the exchange rate issue together with the IMF,” Guan added.
“The
currency issue is likely to be a provision in the future trade pact between the
two countries,” he said.
Source:Global Times
Commemorative notes issued by the
People’s Bank of China for the 70th anniversary of the launch of China’s
renminbi currency. (Photo by Guan Kejiang from CFP)
‘Currency manipulator’ label of US groundless: Analysts
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