China hits back after US labels rival a currency manipulator

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China hits back after US labels rival a currency manipulator
WASHINGTON, DC - JANUARY 30: Chinese Vice Premier Liu He (3rd R), Central Bank Governor Yi Gang (2nd R) and other Chinese vice ministers and senior officials sit down with Trump Administration officials for negotiations in the Diplomatic Room at the Eisenhower Executive Office Building January 30, 2019 in Washington, DC. The top trade officials are beginning two days of face-to-face trade talks to end a months-long trade war between the world’s two largest economies. (Photo by Chip Somodevilla/Getty Images)

China’s central bank has condemned Washington’s decision to officially call Beijing a currency manipulator, saying it would “severely damage international financial order and cause chaos in financial markets”.

Read more: European stock markets tentatively rise as China stems currency fall

The People’s Bank of China (PBoC) said it “has not used and will not use the exchange rate as a tool to deal with trade disputes”. 

The rebuttal comes after the US Treasury Department last night officially called China a currency manipulator, saying it had taken “concrete steps to devalue its currency” to “gain unfair competitive advantage in international trade”.

The US’s accusation followed a severe drop in the value of China’s currency the renminbi yesterday to the seven-per-dollar level not seen since the financial crisis. The currency has stabilised today.

Last week US President Donald Trump slapped 10 per cent tariffs on $300bn of Chinese goods, meaning almost all Chinese exports to the US are now tariffed. China has since ordered its firms to stop buying US agricultural goods.

Today, the Chinese central bank said China “advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path”.

The statement followed a fiery editorial in China’s official Communist party newspaper saying the US was “deliberately destroying the international order”.

European markets have been calmer today after a sharp equities sell-off yesterday in favour of safer assets. Traders feared the renminbi’s slide was a sign that China was resigned to not reaching a trade agreement.

Germany’s Dax stock index was 0.4 per cent higher by the early afternoon, France’s CAC 40 was up 0.7 per cent, and the pan-European Euronext 100 had climbed 0.5 per cent.

Britain’s FTSE 100 was marginally lower as no-deal Brexit fears and a rising pound weighed on UK equities.

Tao Wang, economist at UBS in Hong Kong, said: “We think the most important takeaway is the risk of US-China trade war escalating further has increased.”

“In practice, President Trump can use this as a catalyst to increase tariffs on Chinese exports again… or take other actions at will.”

Read more: Tumbling Chinese currency drags down stock markets on trade war fears

“As the trade war escalates further and depreciation pressure on the renminbi intensifies, we expect the dollar-renminbi to trade beyond seven more often in the rest of the year.”