Chinese, Philippine and Australian banknotes stacked at a currency exchange store. Photo: Bloomberg

Beijing says yuan policy is actually doing US a favour

Ministry of Commerce report claims China’s forex interventions have benefited global community

China defended its yuan exchange-rate policy and its interventions in the foreign exchange market on Thursday, saying it hasn’t manipulated its currency but instead sacrificed some of China’s interests to help the world, including the US.

The yuan comments were part of a 117-page report on Sino-US trade relations published by the Ministry of Commerce, and are a response to allegations that China is deliberately manipulating its exchange rate to help its exporters.

US President Donald Trump earlier labelled China a “grand champion” in currency manipulation, although he has changed his rhetoric recently.

In the report, the commerce ministry said China’s central bank had been selling US dollars to support the value of the yuan.

“What the Chinese government had done was not exactly the manipulation of [the] exchange rate,” the ministry wrote. “On the part of China, no competitive advantage had been acquired therefrom, but instead, a large foreign exchange reserve had been consumed in this course.”

China’s foreign exchange interventions “effectively avoided the negative spillover effect” from a sharp yuan depreciation and prevented “competitive devaluation of the major currencies”, and were “favourable to the international community, including the US”.

Allegations from Washington about Chinese currency manipulation were “neither objective nor fair”, the ministry added.

Beijing has made great efforts to stave off a fast yuan depreciation. China’s foreign exchange reserves have been depleted by nearly a trillion US dollars since June 2014, or a quarter of the total. The central government also imposed capital account controls.

The ministry’s comments on the yuan were in line with the policy stance of the People’s Bank of China, but the fact that the trade ministry, instead of the central bank, was speaking on behalf of Beijing to Washington about currency might reflect a subtle power shift behind the scenes, analysts said.

Chen Fengying, a senior researcher with the China Institutes of Contemporary International Relations, said the Ministry of Commerce was taking a leading role in the China-US economic talks in Washington next month, with assistance from the finance ministry and the central bank.

After China revalued its currency up in 2005, trade groups under the watch of the Ministry of Commerce, on behalf of Chinese exporters, made loud complaints about yuan appreciation. China re-pegged the yuan to the US dollar in June 2008, when the global financial crisis hit China’s export sector hard.

Beijing now appears to be pegging the Chinese currency to the dollar again, after some missteps in the past few years. The yuan has been hovering in a narrow range around 6.9 against the greenback in 2017.

Meanwhile, since Trump had largely dropped the currency manipulator allegation and his Treasury Department hadn’t labelled China as one, the exchange rate issue was unlikely to be a focus of bilateral talks, said Zhao Yang, chief economist at Nomura in Hong Kong.

“The top priority [for China] is to increase purchases of American products to fulfil the 100-day plan agreed between Trump and President Xi Jinping,” Zhao said.

Liu Dongliang, a senior analyst with China Merchants Bank in Shenzhen, said Beijing and Washington still had their differences over whether Beijing had done enough to free up the yuan exchange rate, but that there wouldn’t be a big quarrel over the issue.

“The Trump administration won’t do that [label China a currency manipulator], especially now that bilateral ties have warmed up following the leaders’ meeting,” he said.

This article appeared in the South China Morning Post print edition as: China does ‘U.S. a forex favour’