Renminbi Note - Image: pnoeric (Flickr.com CC-BY-SA)
A new House of Representatives bill punishing China for its policy of manipulating the value of its currency could seriously affect the relationship between the two nations, China warned.
Foreign Ministry spokesperson Jiang Yu proclaimed that China is “resolutely opposed” to the bill, and said that should Congress decide to pass it, ties to Beijing could be harmed. However, she did not mention whether or not Beijing would actively retaliate against the bill were it to pass.
The proposed legislation would allow the Commerce Department to treat “fundamentally undervalued currencies” – which includes the Chinese renminbi – as an illegal export subsidy. Consequently companies could request duties against Chinese goods to offset the price difference.
The tight grip the Chinese have on their currency is a fundamental tenet of its economic strategy, allowing exporting of cheap goods around the world. Loosening its grip, or even allowing it to float on the free market with most other world currencies, would dramatically affect the stability of China’s economy.
Criticism of the policy has grown steadily for years as trade deficits continue to increase, but as many nations are looking to revitalize their own economies with exports after the worldwide recession, the financial policy of the world’s second largest economy is under the most intense scrutiny yet.
While the bill is not expected to pass Congress, a decision one way or the other is unlikely to be made before the November midterm elections, which could potentially shift the balance of power in the Senate and all of Washington.
