China not a currency manipulator: US Treasury

WASHINGTON • The US Treasury Department has for the final time during President Barack Obama's tenure declined to label China a currency manipulator, saying the country now meets just one of the three criteria for inclusion on the US currency watchlist.

This means that if nothing changes, Beijing could fall off the watchlist as soon as next year.

Applying the manipulator label to China would represent a major shift from US practice over more than two decades, and would risk provoking retaliation. The last time the US designated China a currency manipulator was in 1994, when Mr Bill Clinton was president.

Under a 1988 law, the Treasury is required to assess whether major trading partners game their currencies to prevent balance-of-payments adjustments or to gain an unfair trade advantage. It created a new monitoring list in April after Congress passed a law requiring closer scrutiny of foreign exchange regimes.

Treasury officials developed three criteria to decide if countries are being unfair: an economy having a trade surplus with the US above US$20 billion (S$28 billion); having a current account surplus of more than 3 per cent of its gross domestic product; and one that repeatedly depreciates its currency by buying foreign assets equivalent to 2 per cent of output over the year.

Meeting all three would trigger action by the president to enter discussions with the country and seek potential penalties.

China retains a significant trade surplus with the US, and greater transparency from the Chinese government of its foreign exchange goals would bolster the currency regime's credibility, the Treasury said. But its current account surplus narrowed to 2.4 per cent of GDP for the 12 months through June, putting it below the threshold for the watchlist.

In addition, rather than trying to weaken the yuan to gain an advantage, China sold an estimated US$570 billion in foreign exchange assets from August 2015 to August 2016 in an effort to prevent a rapid decline in the currency, the Treasury said.

The yuan has declined about 3.5 per cent against the dollar this year.

Japan and Germany were flagged in the watchlist. The Treasury added Switzerland to its monitoring list. Taiwan remained on the list.


A version of this article appeared in the print edition of The Sunday Times on October 16, 2016, with the headline 'China not a currency manipulator: US Treasury'. Print Edition | Subscribe