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What Chinese state media are saying about the falling yuan and escalating trade war

Lisa Micheal 3 Aug 5

China's state newspaper on Tuesday accused the United States of "deliberately destroying international order," one day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.

"A country without integrity will be lonely," an editorial by the People's Daily said. "The irresponsible acts exhibited by some Americans show that they disregard justice and undermine honesty," it said, according to CNBC's translation of the Chinese newspaper.

China's state media typically serve as the government's mouthpiece.

On Monday, Beijing allowed its currency to slide below what has been widely viewed as a psychological red line — the key 7 yuan to the dollar level — for the first time since 2008. Later that day, the U.S. Treasury Department declared China a currency manipulator — it was the first such designation in 25 years, when Beijing was named a currency manipulator in 1994.

The U.S. and China have been engaged in a trade dispute for more than a year, with both sides imposing duties on billions of dollars worth of goods from each other. Things escalated last week when the Trump administration threatened to implement 10% tariffs on $300 billion worth of Chinese imports starting Sept. 1.

Trump has repeatedly accused China of keeping the yuan low in order to gain a trade advantage, as exports are cheaper when the currency is weaker.

In an op-ed on Monday, before Washington's latest move, Chinese state-owned paper Global Times said the U.S. government "needs to stop fantasizing about a China surrender brought on by extreme pressure."

"China would like to reach a trade agreement, but this does not mean it is timid ... when Washington increases tariffs, China will take necessary countermeasures," said the newspaper.

For the U.S. and China to "establish a trade relationship conducive for a win-win result," both sides must be considerate and honest, said the op-ed. Beijing will "not hesitate to take necessary countermeasures" if pushed, Global Times said.

During Monday's trading in Asia, the onshore currency changed hands at 7.0304 against the dollar, while the offshore yuan traded at 7.0807 against the greenback.

After the currency breached the 7 yuan per dollar on Monday, China's central bank governor Yi Gang said Beijing will not use its currency as a tool to cope with external disturbances such as trade disputes.

The yuan exchange rate is now at an appropriate level — in line with China's economic fundamentals and market demand and supply, said the governor of the People's Bank of China.

Chinese state media Xinhua also wrote in a Monday report that the yuan depreciation is a "normal reaction" to rising protectionism rhetoric from U.S. President Donald Trump and increasing trade pressures.

It's still too early to see if China is weaponizing the yuan, said Michael Hirson, a director at Eurasia Group.

"The pace matters more than the level," he told CNBC on Tuesday. If there's a rapid pace of depreciation over the next few weeks, that would clearly be a "warning sign" that China is willing to weaponize the currency, Hirson said.

However, if the Chinese central bank were to strengthen the currency on some days and allow it to weaken on others — and signal that it's not sending the yuan on a "one-way course," that will be a positive sign, Hirson added.

— Reuters, Everett Rosenfeld and Thomas Franck contributed to this report.