Obama called China a “currency manipulator”

Got the following news from an UK publication.

Seems like the western developed nation is started to shift the blame to China.

Not surprising.

CHINA has begun to devalue the yuan for the first time in more than a decade, raising fears that it will set off a 1930sstyle race to the bottom and tip the global economy into an even deeper slump.

The central bank has shifted the central peg of its dollar band twice this week in a calculated move that suggests Beijing aims to offset the precipitous slide in Chinese manufacturing by trying to gain further export share abroad.

The futures markets are pricing in a 6pc devaluation over the next year. “This is clearly a big shift in policy and we are now on alert,” said Simon Derrick, currency chief at the Bank of New York Mellon.

The move follows a speech by President Hu Jintao warning that China is “losing competitive edge in the world market”.

China has allowed a crawling 20pc revaluation over the past three years. Any reversal risks setting off conflict with the incoming team of PresidentElect Barack Obama in Washington. Mr Obama called China a “currency manipulator” during the campaign, a term that carries penalties under US trade law. Outgoing US Treasury Secretary Hank Paulson is viewed as a “friend of China”. He called for a stronger yuan this week before embarking on a visit to Beijing, but the plea was couched in friendly terms.

Hans Redeker, currency head at BNP Paribas, said that China’s policy switch could set off a dangerous chain of events. “If they play this beggar-thy-neighbour game, it will cause a deflationary shock The devaluation of the yuan being priced in by futures markets over the next year for the whole world,” he said.

It makes sense for countries with current account deficits such as the UK, US or Turkey to let their currencies fall, but China has the world’s biggest trade surplus.

Michael Pettis, a professor at Beijing University, said it was “very worrying” that a prodevaluation bloc seemed to be gaining the upper hand in the Communist Party. “We are on the brink of a very ugly period for trade relations,” he said. China has relied on exports to North America and Europe as its growth engine, making it acutely vulnerable to the contraction in global demand.

Prof Pettis said this recalls the role played by the US in the 1920s, a parallel fraught with danger. “In the 1930s, the US tried to dump capacity abroad, but the furious reaction of trading partners caused the strategy to misfire. China already seems to be in the process of engineering its own Smott-Hawley,” he said, referring to the infamous US Tariff Act in 1930.

China showed restraint during the Asian crisis in 1998, holding the line against domino devaluations. It may yet hold the line this time. However, this crisis is more serious. The manufacturing sector has seen the steepest decline since the records began. Civil unrest has begun to rock the Guangdong and Longnan regions.

Beijing has slashed rates and unveiled a fiscal stimulus of 14pc of GDP. However, most of the spending comes in the form of instructions to local governments to spend more – but without giving them the money.