China’s Foreign Exchange Policies
Uncertainties stemming from trade disputes have put downward pressure on the global economy. Against this background，how will China’s foreign exchange market react? What measures will be taken by regulatory authorities? In an effort to examine these issues，China Forex excerpted statements on foreign exchange policies by senior government official in response to questions. The officials were Pan Gongsheng，Vice Governor of the People’s Bank of China (PBOC) and Administrator of China’s State Administration of Foreign Exchange (SAFE)，Lu Lei，SAFE Deputy Administrator and Wang Chunying，SAFE’s Chief Economist.
Uncertainties stemming from trade disputes have put downward pressure on the global economy. Against this background，how will China’s foreign exchange market react? What measures will be taken by regulatory authorities? In an effort to examine these issues，China Forex excerpted statements on foreign exchange policies by senior government official in response to questions. The officials were Pan Gongsheng，Vice Governor of the People’s Bank of China (PBOC) and Administrator of China’s State Administration of Foreign Exchange (SAFE)，Lu Lei，SAFE Deputy Administrator and Wang Chunying，SAFE’s Chief Economist.
01
The renminbi exchange rate has experienced volatility recently. On August 5，it weakened beyond seven to the US dollar. What is your assessment of this movement by the currency?
Pan Gongsheng: It was a spontaneous reaction of the financial market to the unexpected US announcement of new tariffs on imports of Chinese goods. The US provoked the Sino-US trade dispute in April 2018 and steadily escalated the friction thereafter. This has been a key factor behind the recent short-term movement in the renminbi exchange rate. To be specific，on June 16，2018 the US suddenly announced new tariffs on US$50 billion worth of imports from China，despite the fact that negotiations had made some progress. Three days later，the US threatened punitive tariffs on another US$200 billion worth of Chinese goods. The renminbi exchange rate fluctuated significantly on the news，losing 3.4% in June 2018 alone. In December of the same year，the presidents of the US and China reached a truce at the G20 summit. Afterwards，the renminbi appreciated. Yet，in May 2019，the US made the surprise move of imposing new tariffs. As a result，the onshore spot renminbi rate against the US dollar lost 2.4% that same month. On August 2，2019，the US threatened to impose tariffs on imports of another US$300 billion of goods from China. There was a sharp fluctuation in the renminbi rate on the back of the fresh tariff threat. Both onshore and offshore rates broke through seven against the US dollar on August 5. The spot exchange rates of the renminbi against the US dollar fell by about 1.9% on August 2 and 5. The ups and downs in the short run are normal market responses to a changing external environment.
02
The US Treasury designated China as a currency manipulator. What is your response to this action?
Pan Gongsheng: The US decision to designate China as a so-called currency manipulator is nothing more than a political maneuver against a background of protectionism and unilateralism. It is also a ridiculous accusation that will go down in international financial history. The US Treasury’s decision completely ignored the adjustments in the international financial markets resulting from the protectionist，unilateral tariff increases by the US. Moreover，it contradicts the conclusion reached in the Treasury’s own Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States in May 2019. The move is part of Washington’s game plan to increase the level of economic and trade friction with China. It demonstrates that US policy assessments are opaque and arbitrary. In the future it is possible that any price adjustments in the international market that are not welcomed by the US administration could be branded as “government interventions.”
The International Monetary Fund (IMF)，after concluding the annual Article IV consultations for its review of the Chinese economy，reaffirmed in its newly released report that the renminbi exchange rate is broadly in line with economic fundamentals. The conclusion，which is the same as the IMF’s judgment in 2015，demonstrates that the US designation of China as a currency manipulator is groundless.
03
What does this action mean for China? If the US takes further punitive measures，what kind of effects might we see?
Lu Lei: The charge of being a currency manipulator does not mean we will see a collapse of the