(Updates with Shen’s comments in second paragraph.)
Nov. 16 (Bloomberg) -- Criticism of China’s exchange rate is “groundless and unreasonable” and the value of the yuan isn’t the cause of lopsided trade flows, Commerce Ministry spokesman Shen Danyang said in Beijing today.
The nation’s trade surplus fell to less than 1.4 percent of gross domestic product in the first 10 months of the year from under 3 percent in 2010, Shen said at a regular briefing. Shen was asked to comment on a report that the World Trade Organization will examine whether international trade rules can be used to punish governments that manipulate their currencies.
China’s currency policy came under the spotlight at a summit of leaders of Asia-Pacific economies on Nov. 13 when President Barack Obama said “enough’s enough” on what the U.S. views as an inadequate appreciation of the yuan. President Hu Jintao hit back, saying the nation’s exchange-rate policy is “responsible” and isn’t to blame for the U.S.’s economic problems, according to a foreign ministry statement.
Brazil, Latin America’s biggest economy, proposed to the WTO in September that it allow members to protect their industries from trade imbalances prompted by currency fluctuations. Rules covering anti-dumping and safeguard mechanisms, as well as retaliation rights, need to be updated to deal with “steep fluctuations in exchange rates,” the nation’s foreign ministry said on Sept. 19.
The 153 government members of the WTO have agreed to hold a meeting on the topic, probably in the first half of next year, Keith Rockwell, spokesman for the Geneva-based trade body, was quoted as saying in a Wall Street Journal online report dated yesterday. They will also discuss the issue at a meeting of trade ministers next month, he was cited as saying.
The WTO treaty forbids countries from using currency policy to “frustrate” countries that were expecting market access when signing on to the rules, Rockwell was quoted as saying. That article has never been tested in a dispute settlement so it would be “tricky” to determine how it might be interpreted, he said.
In the U.S. Congress, the Senate approved a bill last month that would let manufacturers seek duties on Chinese imports if they prove they were harmed by manipulation of the yuan. It faces opposition in the Republican-controlled House, where Speaker John Boehner said the measures pose “a very severe risk of a trade war.”
Political pressure may not be enough to push China to allow faster appreciation, Tim Condon, Singapore-based head of Asian research at ING Groep NV, said in a research note today. He estimates gains against the dollar may slow to 3 percent over the next year after a 4.7 percent rise this year as inflation moderates.
The yuan has appreciated 30 percent against the U.S. dollar since the currency was revalued in July 2005 and gained about 8 percent since the central bank ended a two-year peg in June 2010 after the global financial crisis.
William R. Cline and John Williamson, researchers at the Peterson Institute for International Economics in Washington, said this month the undervaluation of the yuan against the dollar amounts to 24 percent.
China’s trade surplus as a percentage of GDP last year compared with 10 percent in Russia and 6 percent in Germany, Shen from the commerce ministry said today.
The ratio has declined from 6.7 percent in 2008 when the surplus rose to a record $298 billion, government data show.
--Victoria Ruan. Editors: Nerys Avery, Ken McCallum
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