China's official Communist Party newspaper said on Tuesday the United States was "deliberately destroying international order", a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute. In a strongly-worded editorial, the People's Daily also said the United States was holding its own citizens to ransom, without mentioning the latest US move.
The responsibility of big countries is to provide the world with stability and certainty while creating conditions and opportunities for the common development of all countries, according to the editorial. "But some people in the United States do just the opposite," it said.
The US Treasury Department said on Monday that it had determined for the first time since 1994 that China was manipulating its currency, taking the countries' year-long trade war into uncharted territory and adding to frenzied selling in global financial markets.
The announcement came hours after China let its yuan currency break through a key support level to an 11-year low, in a sign Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.
The yuan extended losses in onshore and offshore markets on Tuesday after falling sharply against the dollar the previous day, but it pulled off early lows amid signs that China's central bank may be looking to stem the slide, which has sparked fears of a global currency war.
The yuan has tumbled 2.3 percent in three days since President Donald Trump's sudden declaration last week that he will impose 10 percent tariffs on $300 billion of Chinese imports from Sept. 1, breaking a brief ceasefire in the trade dispute.
The latest US move came less than three weeks after the International Monetary Fund (IMF) said the yuan's value was in line with China's economic fundamentals, while the U.S. dollar was overvalued by 6 percent to 12 percent.
US law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.
"In a strict sense, it's baseless for the US side to determine that there was exchange rate manipulation based on the change in the exchange rate of the RMB (yuan) on a single day," said Zhang Anyuan, Chief Economist at China Securities.
"Now that there is a label of exchange rate manipulation, (we) do not rule out the US will introduce punishing measures that go beyond an existing understanding of the situation."
The China Daily said in an editorial on Tuesday that the yuan was weak as a result of "unilateral and protectionist moves by the US government" and said long-term exchange rates were decided by "economic fundamentals".
Analysts said the US move could escalate the trade war, which had already been spreading beyond tariffs to other areas, such as technology.
J.P. Morgan Asset Management APAC Chief Market Strategist Tai Hui said it was "another major setback to the possibility of a trade agreement".
In a further sign of deteriorating ties, China's commerce ministry announced overnight that its companies had stopped buying U.S. agricultural products in retaliation against Washington's latest tariff threat.
Trump had earlier declared China's currency move to be "a major violation", and analysts said it is likely the White House pressured the Treasury Department to issue the designation.
"It's ridiculous that they've declared China a currency manipulator," said Mark Sobel, a former senior Treasury and IMF official who now works with the Official Monetary and Financial Institutions Forum, a London-based think tank.
"They don't have any meaningful tools to do anything about it, unless they just want to pile more tariffs on," he said.
The offshore yuan fell as low as 7.1397 per dollar in early Asian trade on Tuesday before clawing back most of the losses after China's central bank said it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short-selling of the currency.
Onshore yuan also opened weaker around 7.0699. While the central bank set a slightly firmer-than-expected morning benchmark rate of 6.9683, it was still the weakest since May 2008.
Chinese monetary authorities let the yuan fall past the closely watched 7 level so that markets could finally factor in concerns around the trade war and weakening economic growth, three people with knowledge of the discussions told Reuters on Monday.
The People's Bank of China (PBOC) has insisted the value of its yuan is determined by the market, though it has maintained a firm grip and supported the currency when it neared sensitive levels over the past year.
The US Treasury Secretary Steven Mnuchin said the U.S. government will engage with the IMF to eliminate unfair competition from Beijing.
After determining a country is a manipulator, the Treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from US government procurement contracts.