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Wednesday, October 5, 2011

China threatens trade war with US over yuan

Wednesday, 05 Oct 2011

A war of words has erupted between China and the United States, after a US senate vote to move ahead with a bill that would punish China for keeping the value of its currency low and the spat could trigger wars of another kind which could have a more tangible impact on the fragile global economy.

Mr Ma Zhaoxu spokesman of Chinese Foreign Ministry warned on China's official government website that “The yuan bill passed by the US Senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime and may also lead to a trade war which we would not like to see.”

Mr Ma added “By using the excuse of a so called currency imbalance, this will escalate the exchange rate issue, adopting a protectionist measure that gravely violates World Trade Organisation rules and seriously upsets Sino US trade and economic relations. China expresses its adamant opposition to this.”

Echoing the Foreign Ministry's trade war warning, the People's Bank of China pointed out that factoring in inflation, the yuan has appreciated greatly and is close to a balanced level in line with China's trade situation and restructuring needs.

The US Senate vote opened a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the US government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies. US lawmakers, eyeing the 2012 elections, said keeping China's currency undervalued had cost American jobs and that a fairer exchange rate would help cut an annual trade gap Washington puts at more than USD 250 billion.

The latest tensions between China and the US are un welcome at a time when the global economy is in a precarious position. There are also concerns of a currency war should China the largest foreign holder of US government debt retaliate by dumping US Treasuries.

(sourced from Todayonline)

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