MNI EXCLUSIVE: China Won't Weaponise Yuan in Trade War

By Iris Ouyang

     BEIJING (MNI) - Beijing will not weaponise the yuan in its trade war with

the U.S. despite Washington's latest tariff hike, an expert advising the Chinese

government on trade told MNI, with other advisors adding that the future of

negotiations hangs in the balance ahead of tomorrow's talks between Vice Premier

Liu He and U.S. officials.

     "We won't use the yuan as a weapon," said Wang Haifeng, director of

International Trade and Investment at the Chinese Academy of Macroeconomic

Research, run by the National Development and Reform Commission.

     While another government advisor, Zhang Ming of the Institute of World

Economic and Politics under the Chinese Academy of Social Sciences, told MNI

that the yuan might weaken if talks fail, perhaps even as far as 7 to the

dollar, Wang said that the currency's moves would not be used as a tactic in

talks.

     "The adjustment of our foreign exchange rate depends on the needs of our

domestic economy, and it won't be used as a retaliatory tool," Wang said.

     The two sides were due to resume talks in Washington later on Friday after

the U.S. said it would go ahead with a threat to increase duties on $200 billion

Chinese goods to 25% from 10%, despite a letter to Donald Trump from Chinese

President Xi Jinping. While China's Ministry of Commerce said it would "have to

take necessary retaliatory measures", it has not yet provided any specifics.

     "This is a periodical reversal," Wang told MNI in an interview after the

tariff action. "It's normal for large countries which are discussing such an

important issue, and it's in line with our previous expectations."

     "Both sides will continue talks, but things will be different, as many

foundations and the environment changed when the U.S. hit at China again. But

China cannot withdraw from talks, whatever public opinion or the political

situation."

     --ATMOSPHERE "HUGELY DAMAGED"

     Tu Xinquan, a foreign trade expert at the Advisory Committee for Economic

and Trade Policy of the Ministry of Commerce, told MNI that the U.S. tariff move

"hugely damages" the atmosphere of the trade talks, and that their future hangs

in the balance.

     "It depends on the result of Liu's discussions with the U.S.," Tu said. "If

Xi is also very angry, then there's no need to talk and the trade spat resumes."

     "After such a long time, being so serious and scheduling such frequent

meetings, the disappointment will be stronger than before."

     Like Wang, Yu Miaojie, a veteran trade expert advising several government

departments, played down the possibility that China could use a weaker currency

against the U.S.. While a depreciated yuan would make Chinese exports more

competitive, the gains would come against countries whose cooperation is needed

for Beijing's regional trade development plans, such as the One Belt One Road

Initiative and the Regional Comprehensive Economic Partnership, said Yu,

speaking before the U.S. tariff move.

     "China does not want to allow the yuan to depreciate," Yu told MNI. "But we

are not promising this because of the U.S. Yuan depreciation might benefit our

exports and we could earn some money, but it would be outweighed by big losses

in other areas."

     China could even be able to allow the yuan to appreciate, but only to a

limited extent, and only if talks progress well, said Liu Hong, a director of

the Ministry of Commerce's China Association of International Trade.

     "We can adjust the yuan appropriately. The U.S. wants us to appreciate, it

isn't impossible, but only to a certain degree," Liu told MNI, in comments on

Thursday, before the announcement from Washington.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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