China vows to hit back if targeted by US on yuan

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Beijing will retaliate if the United States declares China a currency manipulator and imposes trade sanctions, Commerce Minister Chen Deming said on Sunday, firing the latest salvo in a spat over the value of the yuan.

Chen again accused Washington of politicising the issue ahead of an April 15 deadline for the US Treasury to rule whether China is unfairly holding down its exchange rate to gain a competitive edge in global markets.

"The currency is a sovereign issue and should not be an issue to be discussed between two countries," Chen told the China Development Forum.

"We think the renminbi is not undervalued, but if the US Treasury gave an untrue reply for its own needs, we will wait and see. If such a reply is followed by trade sanctions, I think we will not do nothing. We will also respond if this means litigation under the global legal framework," he added.

Chen did not specify how Beijing might respond.

Political pressure is growing in Washington to declare China a currency manipulator, with some US senators threatening to slap duties on Chinese products if Beijing does not allow the yuan, also known as the renminbi, to rise.

The head of the Asian Development Bank (ADB) on Sunday joined the chorus of calls for Beijing to abandon the peg of 6.83 yuan to the dollar imposed in mid-2008 to help China's exporters weather the global financial crisis.

In the three years before that, Beijing had let the yuan climb 21% against the dollar.

"Greater flexibility in the exchange rate of the yuan would be in the interests of the Chinese economy. Rebalancing is a big challenge and exchange-rate flexibility could contribute to making that process smoother over the years to come," ADB President Haruhiko Kuroda told Reuters.

While it was wrong to rely exclusively on the exchange rate to tilt the economy away from exports and towards consumption, a freer-floating yuan would also strengthen Beijing's control over monetary policy, Kuroda said on the sidelines of the forum.

"When and how should be decided by the Chinese authorities," he said of the switch back to a more flexible currency regime.

The International Monetary Fund and the World Bank both urged China last week to let the yuan resume its ascent.

Some US legislators and think-tanks say the Chinese currency is undervalued by as much as 40%, causing imbalances in bilateral and global trade flows.