China Warns U.S. Against Sanctions Over Currency

China's commerce minister warned the United States on Sunday against imposing trade sanctions over Beijing's currency controls, and said his country was likely to report a trade deficit in March.

Washington and other trading partners are pressing China to ease controls that have kept its yuan currency steady against the dollar for 18 months to help its companies compete amid weak global demand. Some U.S. lawmakers have demanded to have China declared a currency manipulator in a U.S. Treasury Department report due out next month, which could precede possible trade sanctions.

Asked what measures China would adopt if the Treasury Department declared it a currency manipulator, Chinese Commerce Minister Chen Deming said China would not sit idly by and reiterated Premier Wen Jiabao's statement a week ago denying that the yuan was undervalued.

"If (the Treasury Department's) reply is accompanied by trade sanctions and trade measures, we will not ignore it," Chen said. "If it is followed by any international legal lawsuit against China, we will take them on."

Business groups say China's currency controls keep the yuan undervalued by up to 40 percent, giving its exporters an unfair price advantage and swelling its multibillion-dollar trade surplus.

Chen dismissed charges that exchange-rate controls are the cause of the surplus, blaming instead U.S. restrictions on exports of certain goods to China, such as high-tech items that could have both civilian and military use. Chen also said the U.S. had politicized the currency dispute and exaggerated the level of the trade surplus between the two countries.

"Both in theory and in practice, the appreciation of a country's currency has a very limited role in adjusting trade," Chen said in a speech at the China Development Forum in Beijing, according to a transcript posted on the Web site of the China Economic Daily.

The Obama administration, following the lead of the Bush administration, has so far refused to cite China as a currency manipulator, believing that a more productive course would be to convince China it is in its own interest to allow the currency to rise in value.

But Chen pointed to the decline of China's global trade surplus in the January-February period by 50 percent from the same period last year — despite the yuan's stability — and said "I personally expect that a trade deficit may occur in March."

The narrowing of the trade surplus reflects surging Chinese demand for imports spurred by its quick rebound from the global economic crisis, while the United States and other key export markets are still struggling.

China's global trade surplus was $7.6 billion in February and the combined January-February surplus was $21.8 billion. Its trade surplus with the United States in the January-February period shrank by 27 percent to $20.9 billion. The gap with the 27-nation European Union, China's biggest trading partner, widened by 34 percent to $22.3 billion.

China's combined trade surpluses with its major export markets were larger than its global surplus because it also ran substantial deficits with Australia, Brazil, Taiwan and other suppliers of iron ore, industrial components and other materials needed by its booming export manufacturers.