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China Warns U.S. Threats on Yuan Could Hurt Trade Ties

Congress proposes empowering Commerce Department to slap retaliatory tariffs on Chinese goods.

China has rejected U.S. legislation seeking to punish Beijing for allegedly manipulating its currency, warning that pressure on the yuan issue could "severely damage" trade ties.

Beijing also said the bill, overwhelmingly approved by the House of Representatives on Sept. 29, violates World Trade Organization rules, and insisted it has not deliberately undervalued its currency.

Angry lawmakers, who accuse Beijing of keeping the value of the yuan artificially low to give its exporters an unfair competitive edge, blamed the weak yuan for the loss of U.S. jobs, just weeks ahead of key midterm elections.

"We firmly oppose the U.S. Congress approving these bills," Chinese foreign ministry spokeswoman Jiang Yu told reporters.

"Exercising protectionism against China under the excuse of the renminbi exchange rate will only severely damage China-U.S. trade and economic ties and have a negative impact on the two countries' economies and the world economy."

The legislation was passed even as the United States announced a resumption of military ties with China after a 10-month break, saying the two powers both wanted to avoid miscalculations in an increasingly tense region.

In Beijing, commerce ministry spokesman Yao Jian said the U.S. bill was "inconsistent with relevant rules of the World Trade Organization to conduct an anti-subsidy investigation based on exchange rate reasons."

"China has never undervalued its currency in order to gain a competitive advantage. The U.S. cannot use its trade deficit with China as an excuse to adopt trade protectionist measures," Yao said, state media reported.

The House bill calls on the government to consider Beijing's currency policy as an improper trade subsidy, and expands the powers of the Commerce Department by allowing it to slap retaliatory tariffs on Chinese goods.

The chamber passed the bill by a 348-79 margin, one of its strongest showings against China in years, fuelled by voter anger at the struggling economy and joblessness near 10% ahead of November 2 elections.

Some critics say the yuan could be undervalued by as much as 40%.

"The U.S.-China relationship is an important one in every way, culturally, politically, diplomatically, economically, commercially, but we need to have them play by the rules," said Democratic House Speaker Nancy Pelosi.

The Senate has signaled it will take up a companion bill after the elections, but the legislation's fate is unclear and President Barack Obama has not formally taken a position on whether he supports it.

Copyright Agence France-Presse, 2010

TAGS: Trade
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