TIANJIN: China will not stoop to competitive devaluation of its currency, Premier Li Keqiang stressed, hours after China hit back, with a softer punch than the one landed by the United States, in an escalating tariff war between the world’s largest economies.
Addressing a World Economic Forum event in the port city of Tianjin on Wednesday, Li did not directly mention the trade conflict but said talk of Beijing deliberately weakening its currency was “groundless.”
“One-way depreciation of the yuan brings more harm than benefits for China,” he said. “China will never go down the road of relying on yuan depreciation to stimulate exports.” China will not do that to chase “thin profits” and “a few small bucks”.
Li went on to say that the world’s multi-lateral trading system should be upheld, and that unilateral trade actions will not solve any problems.
His remarks gave a lift to the yuan, which has lost about 9 per cent of its value since mid-April amid the ongoing trade war.
On Tuesday, Beijing added $60 billion of US products to its import tariff list in retaliation for US President Donald Trump’s planned levies on $200bn of Chinese goods.
But Beijing is running out of room to respond to any further US tariffs on a dollar-for-dollar basis, raising concerns it may resort to other measures to weather what could be a protracted trade battle.
China has yet to publicly accept an invitation extended last week by US Treasury Secretary Steven Mnuchin to hold a fresh round of talks, which China welcomed at the time.
On Wednesday, Foreign Ministry spokesman Geng Shuang said he had no information on a possible trade delegation and questioned US sincerity about wanting new talks, noting that the last round was followed immediately by the activation of new tariffs.
“This has become a kind of US routine,” he said.
The United States wants to pressure China to make sweeping changes to its trade, technology transfer and high-tech industrial subsidy policies.
Trump had warned that retaliation by China would trigger tariffs on another $267bn of Chinese goods, on top of duties on $250bn in imports that are already in place or threatened. China, which bought only $130bn in American goods last year, has imposed or threatened tariffs on $110bn in US products.
“China are out of bullets. The fight is done and dusted. Now it’s just a question of how the Chinese can save face and say ‘alright we’re going to change, going to open up wider access not only to the US but to the EU and Japan’,” said Christopher Peel, chief investment officer at Tavistock Wealth in London.
“Their economy is export-led, they can’t afford for it to go out of control,” he told Reuters.
ECONOMIC HIT: The new US tariffs will begin on Sept 24 at 10pc and will increase to 25pc by the end of 2018, with Bank of America Merrill Lynch forecasting a 0.5 percentage point decline in Chinese gross domestic product (GDP) growth for 2019 to 6.1pc.
Oxford Economics said in a note that China’s economic growth in 2019 could fall well below 6pc, and said prospects for near-term easing in tensions were low.
But, it added “the likelihood of de-escalation will rise over time as the increasing economic impact in the US will make the Trump team less combative, and China realises that it will be hard to integrate more into the global economy without some concessions regarding its specific economic model.”
Published in Dawn, September 20th, 2018
