China not manipulating currency but lacks transparency

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China's currency: The yuan hit its lowest level against the United States dollar since January 2017 in early trading in Asia, after the Trump administration decided not to label China a currency manipulator.

All three main Wall Street indexes ended negative - a day after chalking up their best day in more than six months - with below-par earnings denting sentiment.

Washington and Beijing are locked in a battle over the yawning US-China trade deficit, which Trump describes as a job killer.

The yuan's value has dropped by 6.2 per cent against the U.S. dollar this year, hitting its weakest level in 21 months on Thursday.

The Treasury also said it has was keeping China, India, Japan, Germany, South Korea and Switzerland on a monitoring list for extra scrutiny.

The good news, from a Chinese perspective, pushed the Yuan down to its weakest position against the Dollar since January 2017; it is now trading at 6.9391 to the Dollar, having ended last week at 6.9219.

The Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States concluded that while the currency practices of six countries "require close attention", no major U.S. trading partner now met the 2015 legislative criteria for enhanced analysis.

There was speculation that the US Treasury was prepared to declare that China was manipulating its currency when it made this week's declaration, but in the end, it rowed back from doing so. Foreign holdings of Chinese bonds increased by 71.6 billion yuan (US$10.5 billion) to a record 1.68 trillion yuan in August, according to data from the Central Depository and Clearing Co and Shanghai Clearing House. Central bank governor Yi Gang repeated that pledge last weekend at a finance conference in Indonesia.

The minutes from the Fed's Sept 25-26 meeting showed every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further, despite US President Donald Trump's view that the tightenings have already gone too far.

These include starting talks while limiting export finance for US-China trade, halting government purchases, blocking any potential trade agreement and directing the International Monetary Fund to carry out "additional rigorous surveillance".

"The U.S. refrained from labeling China a currency manipulator, but dialed up the rhetoric against its currency practices", said Sue Trinh, Head of Asia FX Strategy, RBC Capital Markets.

The Treasury noted reports that China was trying to counter some of the yuan depreciation and said China could bolster confidence in the yuan by engaging in more market-friendly reforms.

"Treasury is working actively across a broad range of areas to help ensure that trade expands in a balanced way that protects USA firms and workers against unfair foreign trade practices".

"One of Trump's most emphatic campaign promises was to declare China a currency manipulator on Day One", said Lori Wallach, director of Public Citizen's Global Trade Watch. For instance, the PBOC can use its "counter-cyclical factor" in the calculation of the yuan reference rate to limit the pace and extent of the currency's fall. It is seeking to gain an edge by upping pressure on China as it struggles with slowing economic growth and sharp declines in the country's stock markets.

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