China Under Immense Pressure to Appreciate Yuan

The U.S. Senate has approved a bill that would increase the pressure on China and other countries to allow the value of their currencies to rise; in a move that supporters have said would create American jobs but that both American and Chinese leaders have warned could lead to a trade war.

The U.S. Senate has approved a bill that would increase the pressure on China and other countries to allow the value of their currencies to rise; in a move that supporters have said would create American jobs but that both American and Chinese leaders have warned could lead to a trade war.

Although the bill is unlikely to become law, the Senate debate has kept a public focus on the currency issue as the two countries remain at odds over China’s control of the yuan. In recent days, the Chinese central bank has intervened in currency markets to drive up the value of the yuan against the dollar, a development in line with U.S. goals.

A bipartisan group of 63 lawmakers voted in favor of legislation intended to force the White House to be more aggressive in seeking tariffs and other penalties against countries with “misaligned” currencies, while 35 lawmakers opposed it. The bill is aimed at helping U.S. firms, which argue that Beijing’s policy of holding down the value of the yuan benefits China’s exporters by acting as a trade subsidy. Opponents of the bill say that if it becomes law, Beijing might retaliate against U.S. firms based in China, possibly sparking a trade war.

President Barack Obama weighed in on the issue last week when he accused China of manipulating the yuan and “gaming the trading system to its advantage.” But he also expressed concern about how the Senate bill might affect U.S. international obligations.

According to Chinese state media agency, Xinhua, a spokesman with China’s Foreign Ministry on Wednesday called on the U.S. government, its congress and various communities to firmly oppose domestic legislation meant to pressure China’s currency, the Renminbi or yuan, into rising further.

“China calls on the U.S. government, its congress and various communities to oppose the pressure put on the RMB exchange rate by domestic legislation and to tackle trade protectionism,” Chinese Foreign Ministry spokesman Ma Zhaoxu said in a written statement on Wednesday morning.

On its website Wednesday, the People’s Bank of China said that it firmly opposes U.S. the bill and that it would seriously hurt trade relations.

China has allowed its currency to gradually increase in value over the past six years, but proponents of the Senate measure argue that is not enough. Economists estimate that the yuan is undervalued by between 15 and 38.5 percent. An artificially weak yuan makes Chinese goods less expensive, which hurts American exports. By some estimates, the weak yuan has cost the United States more than 1.6 million jobs.

Chinese leaders have reiterated on many occasions that the country will continue to reform its exchange rate policy in a gradual and controlled manner while maintaining the currency’s basic stability.

Ma noted the legislation would not resolve problems in the U.S. economy or its employment rate, but would seriously disturb China-U.S. trade relations and undermine efforts made by the two nations as well as the international community in jointly promoting the strong recovery and growth of the world economy.

“[The bill] has nothing to gain and infringes others’ interests without benefiting its own,” Ma said.

The yuan fell to the lower limit of its trading band against the U.S. dollar Wednesday, in the strongest signal yet of China’s displeasure with a U.S. bill targeting Beijing’s management of its currency.

The yuan’s slide came after the Chinese central bank unexpectedly guided its currency lower via a daily reference exchange rate.

Still, expectations are low that the bill will become law, and traders say the yuan will likely resume its upward trend if the bill is voted down by the House of Representatives or vetoed by the White House.

Related: China’s currency manipulation has cost 160,000 American jobs