US-China trade war
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US Trade Representative Robert Lighthizer, Chinese Vice Premier Liu He and US Treasury Secretary Steven Mnuchin during trade talks in Washington in October. Photo: Kyodo

China, US agree to keep yuan exchange rate stable as part of trade deal, Beijing confirms

  • Chinese economic official confirms trade deal between Washington and Beijing will include currency clause to keep the yuan ‘basically stable’
  • Currency agreement could pave the way for the US to remove its designation of China as a currency manipulator

The trade truce that China and the United States are expected to finalise next month will include a currency clause in which Beijing will promise to keep the yuan’s exchange rate “basically stable” in relation to a basket of currencies, a Chinese foreign exchange official said Friday.

Wang Chunying, a spokeswoman for the State Administration of Foreign Exchange, said at a press conference in Beijing that China will stick to its “floating exchange rate system with adjustments and management,” indicating there will be no major depreciation or appreciation of the yuan in the near future.

Wang also said there was no set timetable for opening up China’s capital account, with the government continuing the liberalisation in a gradual manner.

The comments from Wang confirm that Beijing and Washington have reached an agreement on a section of the trade truce to avoid currency devaluations being used to gain competitive trade advantages. After US President Donald Trump announced on October 11 that Chinese and US negotiators had agreed on the outline of a trade truce, US Treasury Secretary Steven Mnuchin said the two sides were close to agreement on currency language that would be included.

A currency agreement could pave the way for the US to remove its designation of China as a currency manipulator. When Beijing allowed the yuan to fall below 7 to the US dollar in early August, Trump alleged China was deliberately making its currency cheaper to offset the impact of US trade tariffs. The US Treasury Department then followed with an official designation.

Top trade negotiators from the two countries – Chinese Vice-Premier Liu He, US trade representative Robert Lighthizer and Mnuchin – are expected to hold a conference call on Friday in which they will discuss details of the trade deal. US and Chinese officials are working on the text of a deal that Trump and Chinese President Xi Jinping could sign during the Asia-Pacific Economic Cooperation summit in Chile in the middle of November.

The US has included currency provisions into other recent trade deals, including the US-Mexico-Canada Agreement.

But analysts have told the South China Morning Post that the deal would not be a new Plaza Accord for China, which would lead to a one-way appreciation of the yuan against the US dollar.

A key reason for China’s opposition to a Plaza Accord-like agreement is the widespread belief in Beijing that it was a major cause of Japan’s asset bubble in the late 1980s, which preceded decades of economic stagnation.

The 1985 Plaza Accord saw Japan, France, Germany, Britain and the US agree to push the value of the US dollar down against the Japanese yen and German deutschemark.

The five countries began selling large amounts of US dollars, leading to a significant loss in its value, while the intervention resulted in the Japanese yen doubling in value against the US dollar in under two and a half years.

In other comments, foreign exchange spokeswoman Wang said China will use the Greater Bay Area as an important testing ground for relaxing capital controls and foreign exchange regulations. For instance, China will make it easier for companies based in the Greater Bay Area to incur foreign debt and move capital out of the country.