BEIJING (REUTERS, BLOOMBERG) - China’s official Communist Party newspaper said on Tuesday (Aug 6) that the United States was “deliberately destroying international order”, a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.
In a strongly worded editorial, the People’s Daily also said the United States was holding its own citizens to ransom, without mentioning the latest US move.
The responsibility of big countries is to provide the world with stability and certainty while creating conditions and opportunities for the common development of all countries, according to the editorial.
“But some people in the United States do just the opposite,” it said.
Chinese state media stuck to the government's line on the yuan's weakening, saying the move was normal while stressing the economic benefit of some flexibility in the currency.
The yuan falling beyond seven a dollar is a "market-driven result" that shows the exchange rate is more flexible than before, according to a Monday (Aug 5) report by Xinhua News Agency.
Some fluctuation in market sentiment is normal amid rising external risks, it said.
People's Daily said it was difficult to predict the yuan's future. The central bank is now "more tolerant of fluctuations" than it was during the last depreciation cycle in 2016, it said in an article published on one of its WeChat accounts, adding that markets have a bigger role to play in the yuan's exchange rate.
The Trump administration formally labelled China a currency manipulator after the yuan weakened to its lowest level in more than a decade on Monday, escalating its trade war with Beijing.
While the move is largely symbolic, it underscores the rapidly deteriorating relationship between the world's two largest economies.
“Naming China a currency manipulator could open the door for US tariffs to eventually increase to more than 25 per cent on Chinese goods,” according to a note from DBS Group Research.
“Apart from naming China a currency manipulator, Trump’s election campaign pledge was to lift import tariffs to 45 per cent on China.”
The yuan pared losses on Tuesday morning in Hong Kong after China's central bank fixed the daily rate at stronger than seven per dollar.
People's Bank of China (PBOC) Governor Yi Gang said on Monday that his country wouldn't use the yuan as a tool to deal with trade disputes.
Domestic financial media also sought to ease investors' nerves. The PBOC hasn't given up its "bottom-line mindset", with policymakers considering a range of risks in managing the exchange rate, a China Securities Journal commentary said.
There's "no need to worry about a steep depreciation of the yuan, or shocks to assets prices amid capital outflow", it said, adding that there is no basis for the yuan to weaken greatly.
The US decision to label China a manipulator came less than three weeks after the International Monetary Fund (IMF) said the yuan’s value was in line with China’s economic fundamentals, while the US dollar was overvalued by 6 per cent to 12 per cent.
US law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant trade surplus with the US, and persistent one-way intervention in foreign exchange markets.
“In a strict sense, it’s baseless for the US side to determine that there was exchange rate manipulation based on the change in the exchange rate of the RMB (yuan) on a single day,” said Zhang Anyuan, Chief Economist at China Securities.
“Now that there is a label... (we) do not rule out the US will introduce punishing measures that go beyond existing understanding of the situation.”
Chinese state media had warned that Beijing could use its dominant position as a rare earths exporter to the US as leverage in the trade dispute. The materials are used in everything from military equipment to high-tech consumer electronics.
Shares in some of China’s rare earth-related firms surged on Tuesday amid speculation the sector could be the next front in the trade war.
Beijing could also step up pressure on US companies operating in China, analysts say.
Beijing in June issued a travel advisory warning Chinese tourists about the risks of travelling to the US, citing concerns about gun violence, robberies and thefts.
Air China said on Tuesday that it was suspending its flights on the Beijing-Honolulu route from Aug 27, following a review of its network.