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China won't weaken currency to boost exports

China Materials 19 September 2018 11:30 (UTC +04:00)
China will not engage in competitive currency devaluations
China won't weaken currency to boost exports

China will not engage in competitive currency devaluations, Premier Li Keqiang stressed, hours after China hit back, with a softer punch than the one landed by the United States, in an escalating tariff war between the world’s largest economies, Reuters reports.

Addressing a World Economic Forum event in the port city of Tianjin on Wednesday, Li did not directly mention the trade conflict but he said talk of Beijing deliberately weakening its currency was “groundless.”

“One-way depreciation of the yuan brings more harm than benefits for China,” he said. “China will never go down the road of relying on yuan depreciation to stimulate exports.”

China will not do that to chase “thin profits” and “a few small bucks”.

Li went on to say that the world’s multi-lateral trading system should be upheld, and that unilateral trade actions will not solve any problems.

His remarks gave a lift to the yuan, which has lost about 9 percent of its value since mid-April amid the ongoing trade war.

On Tuesday, Beijing added $60 billion of U.S. products to its import tariff list in retaliation for U.S. President Donald Trump’s planned levies on $200 billion of Chinese goods.

The United States has so far imposed tariffs on $50 billion of Chinese products to pressure China to make sweeping changes to its trade, technology transfer and high-tech industrial subsidy policies, with China responding with similar scale tariffs.

The new U.S. tariffs will begin on Sept. 24 at 10 percent and will increase to 25 percent by the end of 2018, with Bank of America Merrill Lynch forecasting a 0.5 percentage point decline in Chinese gross domestic product (GDP) growth for 2019 to 6.1 percent.

Oxford Economics said in a note that its baseline forecast for Chinese GDP in 2019 could fall well below 6 percent, and said prospects for near-term easing in tensions were low.

“But the likelihood of de-escalation will rise over time as the increasing economic impact in the U.S. will make the Trump team less combative, and China realises that it will be hard to integrate more into the global economy without some concessions regarding its specific economic model,” the note said.

Investors were relieved that the latest escalation was less severe than some market participants had expected, with Asian stocks rising on Wednesday and U.S. Treasury yields near four-month highs.

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