China's Commerce Minister and several of the country's leading economists have rejected American claims that China was undervaluing its Yuan currency, and have warned of an “all-round trade war” if the U.S. imposed trade sanctions on China.

On Sunday, Commerce Minister Chen Deming warned that China was prepared “to take on” the U.S. if it announced any trade restrictions.

Political leaders and economists in Washington have been calling on the U.S. Treasury Department to officially label China a “currency manipulator”, a move that would trigger trade sanctions and other restrictions. It is expected to give a ruling by April 15.

“If the U.S. Treasury Department's reply is accompanied by trade sanctions and other measures, we will not ignore this,” said Mr. Chen.

“If it is followed by any international legal lawsuit against China, we will take them on.”

The U.S., and several other countries, say China has artificially undervalued its Yuan currency to support exporters here. The value of the Yuan has been pegged at around 6.83 to the dollar since mid-2008. In recent weeks, leading U.S. economists, most notably Nobel Prize-winner Paul Krugman, have called for trade sanctions on China if it did not revaluate the Yuan. Mr. Krugman suggested a 25 per cent tariff on imports.

Political phrase

But economists in Beijing reject the argument that the huge trade deficit the U.S has with China was a result of the Yuan's valuation.

Instead, they point to persisting trade restrictions imposed by the U.S. government on the export of high-tech equipment to China.

Chen Yuyu, a professor of economics at Peking University, told The Hindu in an interview that the predominant view in China was that the under-fire Obama administration was politicising the currency issue to score points at home. “The U.S is now calling China an exchange rate manipulator, which I think is a political phrase. This is more about U.S. congressmen needing to win votes from groups who have lost their jobs to Chinese labour,” Mr. Chen argued.

He, however, added it was in China's own interest to gradually appreciate the Yuan, to lower the price of imported goods and address a growing inflation problem. “China could appreciate the Yuan moderately, but the timing is not good as, if we do it now it appears we are being forced by political pressure,” he said. An alternative option for China, he added, was to lower import tariffs in several sectors, including automobiles, pharmaceuticals and luxury goods, to address trade imbalances.

Mr. Krugman's call for trade sanctions evoked far stronger reactions from government-affiliated economists. Zhang Xiaojing of the Chinese Academy of Social Sciences accused him of “creating a myth” that the Yuan's value was the cause of global imbalances. “It is for the purpose of boosting their own economic growth that U.S. politicians and academics collaborate with each other in spreading such messages around the world,” he was quoted by the official Xinhua news agency as saying.

Trade war

Bi Jiyao, a senior researcher at the National Development and Reform Commission, the country's economic planning body, said last week the U.S. imposing trade sanctions was “tantamount to starting an all-out trade war.” “Is that what the Obama administration wants?” Mr. Bi asked. “I doubt it.”

More In: International | News