China says yuan not cause of big US trade surplus

China on Tuesday shunned mounting US demands for a stronger yuan, saying again that its currency is not the cause of its big trade surplus and vowing to keep the currency stable to shore up exports.

Beijing and Washington appear to be locked in a dialogue of the deaf in the run-up to a US Treasury Department report due on April 15 that will determine whether China is manipulating its exchange rate for trade advantage.

“If the exchange rate issue is politicised, then in coping with the global financial crisis this will be of no help in coordination between the parties involved,” Chinese Commerce Ministry spokesman Yao Jian told a regular news conference.

Yao rejected the argument that China’s hefty trade surplus with the United States was due to the yuan, also called the renminbi, which some US economists judge to be 25 per cent or more undervalued.

“The trade surplus is not caused by the renminbi exchange rate. The trade surplus is an outcome and phenomenon of globalisation. It will exist for a time,” he said.

Yao’s comments echoed recent ones by Premier Wen Jiabao and other Chinese officials, who have stressed that whatever adjustments may come to the nation’s exchange rate, Beijing does not want to be seen as bowing to foreign pressure.

With the US Treasury decision looming, China faces a tricky test in deciding when to make any currency moves.

Yao was speaking a day after 130 US lawmakers demanded that President Barack Obama get tough with China over its currency practices, which they say undercuts the competitiveness of US manufacturers.

“The impact of China’s currency manipulation on the US economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors,” the legislators said in a letter.

Premier Wen on Sunday dismissed US complaints about China’s exchange rate, calling them counterproductive and saying he did not believe the yuan was undervalued.

Market pressures

If the Treasury does rule that China is manipulating its exchange rate, the US government would be required in principle to start “expedited negotiations” on the issue.

“Adjustment in the renminbi exchange rate will be determined based on national economic conditions, and not because of external market pressures,” Sun Lijian, an economist at Fudan University in Shanghai, told the China Economic Times.

Yao asked rhetorically whether China, which has a trade deficit with Japan, South Korea and some developing countries, should copy the United States and pass a law to deal with those countries.

“So we hope that in surmounting the crisis and reviving its economy, the United States should be a promoter of free trade, not an obstacle to it,” he said.