U.S. shies away from calling China a currency manipulator

U.S. shies away from calling China a currency manipulator

On Wednesday, the U.S. Treasury's bi-annual report on currency policy said China failed to meet criteria to be labeled a currency manipulator, a status that can trigger sanctions.

"Treasury is deeply disappointed that China continues to refrain from disclosing its foreign exchange intervention", the department said in its report.

The report offers a bit of a reprieve in the ongoing trade war by concluding that China's direct intervention by its central bank has been limited. The economy's trade surplus with the USA exceeds USD20 billion; its current account surplus makes up at least three percent of its gross domestic product; and it persistently unilaterally intervenes in the foreign exchange market. Doing so is supposed to prompt negotiations to resolve the problem. The currency also showed further weakening after a report from the United States treasury department avoided calling China a currency manipulator.

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"Our clients are cautiously timing their entry into China's bond market, and we are likely to see interest pick up going into April [next year] and as the currency becomes more internationalised". The US dollar has strengthened against the yuan in recent months, prompting speculation that this month's report might contain formal claims of manipulation.

While formally declaring China a manipulator would not have triggered sanctions or other United States penalties, it would have worsened an already tense relationship between the world's two biggest economies.

A growing US economy and falling unemployment have also whipped up demand among US consumers for imported goods, with 2017's record US-China trade deficit continuing to widen this year, swelling 3.2 per cent to $390 billion in the 12 months ending in June.

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The yuan, also known as the renminbi, or "people's money", has declined by nearly 10 percent against the dollar since April as China's economic growth cooled and USA and Chinese interest rates went in opposite directions.

"The US dollar should remain supported in the coming weeks, which would continue to exert [downward] pressure on the yuan and it seems China is not too concerned about this", Cheung said.

On Tuesday, Treasury Department data showed that China's holdings of US Treasuries fell for a third straight month- to $1.165 trillion in August from $1.171 trillion in July - their lowest total in more than a year.

Mnuchin determined in the report released Wednesday that China hasn't crossed three thresholds set by Congress that determine whether a country should be formally designated a currency manipulator. They include a minimum US$20 billion trade surplus with the U.S.; a current account surplus in excess of 3 per cent of gross domestic product; and repeated interventions in currency markets.

"If they'd found a way to label China, it would have hurt sentiment further", said Shahab Jalinoos, Credit Suisse Group AG's global head of FX trading strategy.

More foreign capital is also expected to flow into Chinese equities as global index provider MSCI considers plans to increase the weighting of Chinese A shares in its flagship emerging-market index to 20 per cent next year.

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