The Straits Times: Declare China a currency manipulator? Not so easy: Experts

Imagine it is Jan 20, 2013, and the surprise US election victor Mitt Romney has just been sworn in as the country's 45th president.

What if he delivers on the declaration he made - and has been repeating - that he would declare China a currency manipulator on his first day in office?

Not so easy, say a whole range of experts.

"Realistically speaking, Romney cannot call China a currency manipulator. He can direct the Treasury to label China a currency manipulator. It has to go through a process," said political science professor Lowell Dittmer, from the University of California at Berkeley.

In any case, it is not easy to translate the label into anything of substance, according to Professor Lawrence Lau, chairman of CIC International (Hong Kong) and an economist.

"It has to be WTO-compliant," he said, referring to the World Trade Organisation. "The Treasury may not be able to do more than publish a paper."

As both countries are WTO members, if one has a trade-related complaint about the other, it must file the complaint at the WTO, which will investigate it.

The experts were speaking yesterday at a public forum organised by the East Asian Institute to commemorate its anniversary.

China's veteran diplomat Wu Jianmin, who is executive vice-chairman of the China Institute for Innovation and Development Strategy, pointed out that China has always been a target during US presidential elections. "If we look at the past 40 years, eight presidents... in their campaign statements, there were always hard words with regard to China. But once he enters the White House, he has to face the reality."

Agreeing, Lau said: "The economic stakes are too high for both sides. Either side would have no incentive to have a huge trade war."

Most analysts in China also do not believe that Romney would carry out the threat.

Professor Zha Daojiong of the Peking University's School of International Studies thinks that the scenario hinges on several factors. These include why US voters choose Romney and the backgrounds of his top policy advisers.

"If voters say China and its currency issue are not the top reasons why they supported Romney, he will likely not carry out this threat," said Prof Zha.

"Also, if his advisers have business links or investments in China, it may lower the likelihood of him carrying out the threat too."

Other hurdles that Romney may face include a possible legal challenge from China at the WTO, which does not include currency manipulation in its definition of an illegal subsidy.

But what if he manages to clear these hurdles? How then will China react if it is labelled a currency manipulator, particularly with a new leadership set to emerge and take charge next month?

Most analysts believe Beijing's response will be a moderate one.

Foreign policy expert Yang Cheng from the East China Normal University said: "No Chinese leader... will want to have a confrontation with the US, which remains the most important bilateral partner for China."

At the same time, he believes that China's new generation of leaders under Xi Jinping, all of whom have had wider exposure and interaction with the international community, will likely take a longer-term perspective of managing foreign relations.

"It means they are unlikely to retaliate blindly in the short term towards the US so as to avoid a lose-lose outcome," he added.

Similarly, Zha said Beijing will be measured in its response, unless the impact on Chinese exports is drastic.

He added: "In my interactions with Chinese officials, no one has mentioned preparations of retaliation against the US."

However, analyst Zhou Yongsheng from the China Foreign Affairs University does not rule out the possibility that Beijing might retaliate strongly against Washington, such as with sanctions.

"China may adopt retaliatory actions to send a message to the US that it cannot keep on bullying other countries," he said. "Also, the incoming leaders may want to do so to bolster their authority."