China warns Washington against linking US trade deficit to currency dispute

BEIJING - China on Friday warned Washington against linking the US trade deficit to a dispute over the Chinese currency, saying that doing so will only hurt both sides.

By (AP)

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Published: Fri 15 Sep 2006, 6:26 PM

Last updated: Sat 4 Apr 2015, 4:21 PM

The statement comes ahead of a visit to China next week by US Treasury Secretary Henry Paulson. It was released by the Commerce Ministry in response to a call by two key American senators for a vote on a bill to impose punitive tariffs on Chinese goods, the official Xinhua News Agency said.

“The current friction in Sino-US trade is normal,” ministry spokesman Chong Quan was quoted as saying. He said linking the US trade gap and the currency dispute is “adverse to both sides.”

Paulson said Tuesday that Washington wants to see a more flexible exchange rate for China’s currency, the yuan. The United States and other trading partners say the government-controlled rate is too low, giving Chinese exporters an unfair price advantage and hurting their foreign competitors.

Paulson is expected to raise the issue with Chinese leaders, though he hasn’t said what he will tell them.

US Senators Lindsey Graham and Charles Schumer appealed this week for lawmakers to schedule a vote on their bill to raise tariffs on Chinese imports. They said Washington had to act because Beijing has done too little to reform its exchange-rate policies.

Demands for Beijing to raise the value of its currency have been fed by mounting Chinese trade surpluses.

This week, the government said its trade gap hit a new monthly high in August for the fourth straight month, reaching US$18.8 billion (Ð13.5 billion). The Commerce Ministry said the monthly surplus could surpass US$20 billion (Ð14.5 billion) later this year.

China ended the yuan’s direct link to the US dollar in July 2005, switching to a system that bases the exchange rate on a group of world currencies. But the yuan is allowed to fluctuate by a fraction of a percentage point daily, and has risen by only 2 percent against the dollar since then, disappointing US officials.

Chinese leaders say they plan eventually to let the yuan trade freely on world markets. But they say doing so too quickly could harm fragile Chinese banks and other financial industries.

China’s trade surplus with the United States last year was a record US$202 billion. The gap this year is expected to exceed that.

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