China says US bill on yuan would violate WTO rules

BEIJING, Sept 30, 2010 (AFP) - China said Thursday a bill passed by US lawmakers that could punish Beijing for allegedly manipulating the value of the yuan would violate World Trade Organisation rules.

The comments by commerce ministry spokesman Yao Jian, carried by Xinhua news agency, come after US policymakers overwhelmingly passed a bill Wednesday to punish China for what they called its unfairly undervalued currency.

This photo taken on May 20, 2005 shows a bank teller counting Chinese currency 100 yuan notes in Beijing. AFP

"It is inconsistent with relevant rules of the World Trade Organisation to conduct an anti-subsidy investigation based on exchange rate reasons," Yao said.

"China has never undervalued its currency in order to gain a competitive advantage. The US cannot use its trade deficit with China as an excuse to adopt trade protectionist measures."

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

The House 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 percent ahead of November elections.

The US Senate has signalled 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.

A group representing US businesses in China on Thursday criticised the bill, saying it puts thousands of American jobs in export-related industries at risk and would not spur growth in the world's biggest economy.

"Blaming China won't help the US economy but this legislation may cost American jobs," John Watkins, chairman of the American Chamber of Commerce in China, said in a statement.

"We call on the US Senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."

Hours before the House vote on Wednesday, China's central bank issued a statement pledging to increase the flexibility of its exchange rate and "gradually improve the exchange rate setting mechanism."

The People's Bank of China's wording was almost identical to that used in a similar pledge in June.

Since then, the yuan has strengthened less than two percent against the greenback, angering critics who claim the currency is undervalued by as much as 40 percent.

The central bank on Thursday set the yuan central parity rate -- the middle of the allowed trading band for the currency -- at 6.7011 to the dollar. The yuan can move up or down 0.5 percent from that rate during the trading day.

That was weaker than the 6.6936 rate set on Wednesday, which was the strongest rate against the greenback since the summer pledge. 

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