Volatility in China’s yuan linked to US trade friction

A Chinese bank employee counts 100-yuan notes and US dollar bills at a bank counter in Nantong in China’s eastern Jiangsu province. (AFP)
Updated 11 August 2019

Volatility in China’s yuan linked to US trade friction

  • The US is the IMF’s largest shareholder and has strong sway over who will be its new leader after Christine Lagarde resigned last month

SHANGHAI: Volatility in China’s yuan since August is a normal market reaction to escalating trade frictions stoked by the US and was caused, to some extent, by Washington’s decision to raise tariffs, a senior Chinese central bank official said.
Zhu Jun, director-general of the People’s Bank of China’s international department, made the comments to a forum held in the northern Chinese province of Heilongjiang.
The US Treasury Department on Monday labeled China a currency manipulator, hours after China let the yuan drop through a key support level to its lowest point in more than a decade. The moves jolted financial markets, fueling fears of a global currency war.
Days earlier, US President Donald Trump had vowed to impose a 10 percent tariff on $300 billion of Chinese imports from Sept. 1, ending a temporary truce and sharply escalating the trade dispute.
Zhu said that the yuan’s move was a normal reaction to Trump’s tariff threat. “The labeling ... violates basic, common economic sense and international consensus, and is unconvincing,” Zhu said, adding that the Chinese economy was resilient and capable of coping with various situations.
The year-long trade war between the world’s two largest economies has already spread beyond tit-for-tat tariffs on goods to other areas such as technology, and analysts caution retaliation could widen in scope and severity, weighing further on business confidence and global economic growth.
The yuan lost 1.6 percent against the dollar last week, but there were signs in the last few sessions that authorities were trying to stabilize it.
The International Monetary Fund (IMF) has been reluctant to comment on the US move. The US is the IMF’s largest shareholder and has strong sway over who will be its new leader after Christine Lagarde resigned last month.
A US Treasury official said Secretary Steven Mnuchin spoke with IMF Acting Managing Director David Lipton this week by telephone about currency consultations and also about the leadership succession.
On Friday, the head of the IMF’s China department, James Daniel, stood by the fund’s assessment last month in a report on currencies and trade balances that the value of China’s yuan was broadly in line with economic fundamentals.
He provided no clues to the path forward on the IMF’s engagement with Treasury.
“Our discussions with the US Treasury are ongoing on a range of issues,” Daniel told reporters on a conference call about the IMF’s annual review of China’s economic policies.
G7 officials have also declined to discuss the issue despite repeated queries.
Prominent economists, including former IMF chief economist Maurice Obstfeld and former Treasury Secretary Larry Summers, say there is no evidence to support the move.
China’s global current account surplus is close to zero and Beijing has spent hundreds of billions of dollars to prop up the yuan’s value in the face of mounting tariff pressures.
For the moment, European nations are in no mood to aggravate China or support Trump given his threats to impose tariffs on EU exports, said Stephanie Segal, a former senior Treasury official now at the Center for Strategic and International Studies.
Any attempt to intervene on currency markets would be difficult to do alone, Segal said.
“Currency markets are just too big to act unilaterally, even if it’s the United States,” she said. “It’s not sustainable.”
Naoyuki Yoshino, dean of the Asian Development Bank Institute and former chairman of the Japanese Ministry of Finance’s council on foreign exchange, said the announcement was all about politics, not economic fundamentals.
“The best solution is (for China) to open its capital market,” he said. “Then, if their exports keep on going, capital inflows will come and then the (yuan) should automatically appreciate,” he said.
This currency move would not be the first time that the Trump administration has ignored established policy-making protocols to carry out the president’s directives.
Philip Diehl, a former senior US Treasury official who ran the US Mint when China was last labeled a currency manipulator in 1994, said the designation followed intense deliberations within the Treasury and State Departments that also weighed human rights issues.
He said the Trump administration’s actions call into question the legitimacy of the whole process for evaluating currency manipulations.
“They’re not well thought out, they’re impulsive and they do not appear to be coordinated with our allies,” Diehl said.


US President Trump does not want to do business with China’s Huawei

Updated 19 August 2019

US President Trump does not want to do business with China’s Huawei

  • US Commerce Department expected to extend a reprieve that permits Huawei to buy supplies from US companies to service its customers

WASHINGTON: US President Donald Trump on Sunday said he did not want the United States to do business with China’s Huawei even as the administration weighs whether to extend a grace period for the company.
Reuters and other media outlets reported on Friday that the US Commerce Department is expected to extend a reprieve given to Huawei Technologies Co. Ltd. that permits the Chinese firm to buy supplies from US companies so that it can service existing customers.
The “temporary general license” will be extended for Huawei for 90 days, Reuters reported, citing two sources familiar with the situation.
On Sunday, Trump told reporters before boarding Air Force One in New Jersey that he did not want to do business with Huawei for national security reasons.
He said there were small parts of Huawei’s business that could be exempted from a broader ban, but that it would be “very complicated.” He did not say whether his administration would extend the “temporary general license.”
Speaking earlier on Sunday, National Economic Council director Larry Kudlow said the Commerce department would extend the Huawei licensing process for three months as a gesture of “good faith” amid broader trade negotiations with China.
“We’re giving a break to our own companies for three months,” Kudlow said on NBC’s “Meet the Press.”