China on Thursday warned that a House of Representatives bill to penalize it for not letting the yuan rise faster could seriously affect bilateral ties.
In a relatively measured response, Foreign Ministry spokeswoman Jiang Yu said Congress should avoid steps that could harm relations, saying Beijing was "resolutely opposed" to the bill. But she declined to say whether China would retaliate.
The House of Representatives bill, which many analysts say is unlikely to become law, is aimed at pressuring Beijing to let its currency, also called the renminbi, rise faster by branding it in violation of world trade rules.
"Using the renminbi exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-U.S. trade and economic relations, and will have a negative effect on both countries' economies and the world economy," Jiang told a regular news briefing.
"We urge the members of the Congress to understand clearly the importance of China-U.S. trade and economic relations, and put a halt to protectionism so as to avoid hurting the interests of the peoples of the two countries and of the world."
Whether China would take any U.S. law on the yuan to the World Trade Organization was "hypothetical," she said.
The bill would need to be passed by the Senate -- far from certain and not likely until after congressional elections on November 2 when the U.S. political landscape could be greatly changed -- and signed by President Barack Obama to become law.
China's tight leash on the yuan is under intense scrutiny as countries around the world look to export their way back to economic health, raising concerns they will intentionally weaken their currencies to gain an edge.
Price advantage
The bill allows the U.S. Commerce Department to treat "fundamentally undervalued currencies" as an illegal export subsidy so that U.S. companies can request a countervailing duty to offset China's price advantage.
Earlier in the day, the official Xinhua news agency quoted China's Commerce Ministry spokesman, Yao Jian, as saying: "Starting a countervailing investigation in the name of exchange rates does not conform with relevant WTO rules."
That lawyer-like statement was relatively moderate compared with China's reaction to other disputes this year, including U.S. weapons sales to Taiwan, when Beijing froze military contacts with the United States.
"I don't think China will have any dramatic reaction to this bill's passing," said Jin Canrong, a professor of international relations at Renmin University in Beijing, who specializes in U.S.-China relations. "China wants to preserve the stability of overall relations."
The American Chamber of Commerce in China voiced its opposition to the Chinese currency legislation in an email, saying: "If enacted into law, the chamber does not believe the bill will be effective in achieving its objectives and would fail to create significant U.S. job growth."
China's central bank fixed the yuan's daily mid-point versus the dollar at a weaker level on Thursday.
Despite the weaker mid-point, the yuan has now gained almost 2.2 percent against the dollar since Beijing scrapped a 23-month-old peg to the dollar on June 19 and said it would let the currency resume a managed float. Nearly all of the increase has occurred this month.
The bill could fan the flames of a long-running dispute with China over trade and jobs.
It passed with solid bipartisan support just over a month ahead of mid-term elections as voters focus on the still-struggling U.S. economy and persistently high unemployment.
Quick currency moves unlikely
Chinese analysts were skeptical that the legislation would produce any quick movement on the yuan.
"If you are looking for another one-off revaluation of 3 to 5 percent, or are expecting a 20 percent rise in the yuan over a year ... forget it," said Fu Bingtao, an economist with the Agricultural Bank of China.
China, the largest foreign buyer of U.S. government debt with holdings of nearly $847 billion as of July, says its big trade surplus with the United States is due to Americans saving too little and no longer making the goods that China sells.
While Obama has not taken a position on the legislation, House Majority Leader Steny Hoyer said lawmakers worked with the White House to ensure the bill did not violate WTO rules.
Treasury Secretary Timothy Geithner told Congress two weeks ago that Washington would work with Group of 20 nations to push China for faster appreciation, but several allies expressed reluctance. G20 leaders are set to meet in Seoul on November 10-11.