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China won’t wage a currency war against the US despite rising tariff tensions

The yuan softened to a fresh 13-month low against the US dollar on Monday. Amid escalating trade friction with the US, negative news could easily result in the yuan's depreciation under a managed floating exchange rate regime based on market supply and demand.

In light of this, the Chinese government is unlikely to randomly intervene in the market to support the yuan, but that doesn't mean Beijing wants a currency war with Washington.

The central parity rate of the yuan has depreciated by more than 4 percent since January 1, but that is a result of market forces instead of deliberate government actions. US President Donald Trump's recently adopted protectionist measures have made it hard for China to maintain stable export growth, resulting in depreciation pressure on the foreign exchange market. Due to economic interdependence, the trade conflict is a lose-lose for both China and the US.

A weak yuan is a tailwind for Chinese exporters because it makes their goods and services more affordable in the global market. Amid escalating trade friction, China's exports to the US in June still grew at a 3.8 percent rate, according to Chinese customs data. A market-driven exchange rate is an automatic stabilizer for trade conflict, because it will prompt a depreciation amid an economic downturn, leading to a decline in export prices and boosting exports.

China still has huge foreign exchange reserves, enabling it to avert the continuous depreciation of the yuan. As long as there is no sign of systemic financial risk, there's no need for the Chinese government to intervene too much in the markets. Beijing will certainly keep a close eye on the exchange rate, but it needs to be very cautious in using its policy tools to manage the markets.

The best choice is to roll out measures aimed at shoring up China's exports and imports in a bid to ensure stable economic growth, which would likely lead to a market-based appreciation of the yuan.

China does not want to fight either a trade war or a currency war. If the US must label someone a so-called currency manipulator, the one who is manipulating the yuan to give Chinese exporters an edge in the global market is Washington.

The author is a reporter with the Global Times.

Newspaper headline: China won’t wage a currency war against the US despite ongoing tariff tensions

Source:Global Times  Editor:lirui

(Source_title:China won’t wage a currency war against the US despite rising tariff tensions)