Mainland-based Hong Kong manufacturers are anxiously awaiting the fallout of an April 15 report from the United States Treasury Department which may label China a 'currency manipulator' and trigger punitive sanctions against Chinese exports to the US. Expectations the report may condemn China for depressing the value of the yuan to help its exporters last week saw Vice-Minister of Commerce Zhong Shan travel to Washington to lobby US business leaders on the benefits to global trade of a stable yuan exchange rate and the risks of a trade spat between the countries. Earlier, Premier Wen Jiabao said China did not want a currency and trade war, while Minister of Commerce Chen Deming said the yuan exchange rate was not the root cause of the trade surplus with the US. Caught in the middle of the war of words are mainland-based Hong Kong manufacturers making products destined for the US market. They now worry that the currency war could choke the nascent recovery in mainland exports. Among those raising fears of a trade war is William Fung Kwok-lun, the managing director of Li & Fung, the 104-year-old trading house that sources consumer merchandise from factories on the mainland, India and Indonesia and exports the products to the US and Europe. 'If China is found to be manipulating the currency, the US will impose punitive duties on imports,' Fung said. 'It will become a trade war, which will have a disastrous impact on the trade industry.' Such an outcome is by no means certain, however, and although the US Treasury is highly likely to label China a currency manipulator, the move will be 'more symbolic than substantive', according to former US trade representative Susan Schwab. Schwab told China Daily last week such a label was not a trigger for any action other than consultations. But some economists in the US have criticised China for undervaluing the yuan by as much as 40 per cent, giving its exporters an unfair edge, penalising imports and helping it accumulate huge trade surpluses. Nouriel Roubini, the New York University economist who predicted the global financial crisis, believed a Treasury report that found China guilty of currency manipulation could prompt US lawmakers to call for punitive sanctions, rating such an outcome a 50 per cent chance, given the 10 per cent unemployment rate in the US. 'That could lead to a trade war. Absolutely,' Roubini said on Bloomberg Television. A trade war will be 'a lose-lose situation', particularly for tens of thousands of Hong Kong exporters in the 'factory of the world' - the Pearl River Delta - said Danny Lau Tat-pong, the chairman of the Hong Kong Small and Medium Enterprises Association. 'The higher the punitive tariffs, the more expensive the Chinese imports, which will do good to no parties. If the US really takes action next month, the immediate impact will be Hong Kong exporters losing orders to other cheaper regions.' On the cards in such a scenario will be a shift by American buyers to sourcing imports from lower-cost production bases such as Bangladesh, India and Vietnam. Some Hong Kong exporters said US congressmen were naive to think that revaluing yuan would reduce Chinese imports and revive labour-intensive industries in their market. This was because many of the products that could be affected were no longer made in the US. China has kept the yuan rate largely the same against the US dollar since July 2008, at a range between 6.82 and 6.83. This followed a gradual appreciation of about 21 per cent against the greenback that began in July 2005, when Beijing began a managed float of the currency's peg to the dollar. 'The rhetoric is getting more hostile in the US,' said Iris Lam, a business promotion director of shoe exporter Onlen Fairyland (HK). 'If the US stamps the label of currency manipulator on China, it will be like stabbing itself with a dagger.' Lam's comments were intended as a warning that US shoppers would be the one to suffer from such a move. But irrespective of the outcome, the dispute sent yet another wake-up call to Hong Kong exporters, which should diversify markets by tapping into the mainland's robust domestic market for consumer goods, Lam said. 'Exporters should not only explore new markets, but also diversify production bases geographically, for example, through relocation of factories to other emerging countries,' she added. US exports to China were flat at about US$70 billion last year, which made China the third-biggest market for US exporters. The US is the second-largest export market for China. However, China is a top creditor of the US and held US$889 billion worth of US treasuries as of the end of January, the latest US data showed.