China on Thursday expressed strong opposition after the US House of Representatives backed legislation that could pave the way for sanctions against China over what the US claims is an undervalued yuan.

Analysts in China said the country is set to retaliate if the bill becomes law. For that to happen, the Senate has to pass the bill and President Barack Obama sign it.

"Using the yuan exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both economies and the world economy," Foreign Ministry spokeswoman Jiang Yu told a regular news briefing.

Commerce Ministry spokesman Yao Jian was quoted by Xinhua as saying that the bill was in breach of World Trade Organization (WTO) rules.

"Carrying out anti-subsidy investigations on the basis of currency is against the rules of the WTO," he said. Both failed to indicate whether China would retaliate if the legislation became law.

The bill allows the US to use its own estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries. It would allow US companies to lodge trade complaints against exporters of products that benefit from what they claimed was an undervalued yuan.

"It marks a formal steptowarda trade war," said Zhang Xiaojing, economist at the Chinese Academy of Social Sciences (CASS).

The bill's passage by a 348-79 margin in the House of Representatives comes ahead of November mid-term congressional elections. These will be held against a backdrop of slow economic recovery and an unemployment rate of about 10 percent.

Many Chinese analysts said it is more of a political move than a serious attempt to boost the US economy. They said it set a bad precedent, allowing the US to use its own legislation to punish other countries at will.

"If this measure passes, it will have a big impact on global trade," said Ding Zhijie, director of the finance school at the Beijing-based University of International Business and Economics. "The US can label you according to its own standards and impose anti-subsidy remedies."

And China, analysts said, would not sit idly by if it passes the Senate and becomes law.

"China has a lot of tools in its toolbox," said Zhang Xiaojing of CASS.

"The US exports a lot to China and the China market is very important for its economic recovery. We can also resort to punitive trade measures, for example, if they impose trade measures on us."

China so far has turned to the WTO for resolution of trade disputes with the US. It has challenged US measures that effectively banned imports of Chinese cooked chicken. The WTO said on Wednesday that the US broke international trade rules and harmed China's economy. It was unscientific and discriminatory, the WTO ruled.

The potentially expensive bill would not benefit the US economy, analysts said.

The American Chamber of Commerce in China, which represents 1,200 companies, appealed to the Senate on Thursday to kill the bill, citing reasons that it is unlikely to produce significant US job growth and could even harm American exporters.

"Blaming China won't help the US economy but this legislation may cost American jobs," said the chamber chairman, John D. Watkins, Jr., in a statement. "We call on the US Senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."

The yuan has been the center of China-US economic friction in recent years, with the US blaming China's exchange rate policy for its trade deficit, although it has deficits with a large number of its trade partners.

"Economists found that about 60 percent of Chinese exports were produced by foreign companies, including many US companies," said Ding Yifan, deputy director of the Institute of World Development at the State Council's Development Research Center. "US companies account for a large part of its deficit with China," he said.

"Many of China's exports are actually produced by foreign-invested firms in China, among them many American companies, who then ship these products back to the US for sale," said researchers with the Asian American Studies Center of the University of California, Los Angeles.

(China Daily October 1, 2010)