China hits out at US textile cap

China's textile sector is booming

A US move to limit imports of Chinese textiles has sparked protest from Beijing and could incur retaliation.

The Chinese government said it "firmly opposes" the decision, warning it was planning an appeal to the World Trade Organisation (WTO) over the issue.

Reports said Chinese officials had cancelled a trip to the US to meet soybean sellers in retaliation.

The news came as the International Monetary Fund said China's currency was not undervalued, countering US claims.

There was "no clear evidence" of substantial undervaluation - and in any case loosening the currency peg would make little difference to trade imbalances, the IMF said in its annual review of China's economy.

Several members of the Bush administration have hinted that the Chinese yuan is being kept artificially low to boost Chinese exports.

Lawmakers and businessmen have been more forthright, blaming China - and its $100bn-plus trade surplus with the US - for job losses, not least a claimed 300,000 in textiles in the past two years.

Trade rows

These concerns are, in part, at the root of the US government's decision to limit Chinese export growth to 7.5% a year, capping in particular imports of dressing gowns and robes, knit fabrics and bras.

Shipments of Chinese clothing products have increased sharply over the past 14 months, and US officials say that Chinese government subsidies are to blame.

The timing of the move is unfortunate, however, coming just as the US tries to seal a free trade deal with 33 fellow American countries in Miami.

It is also facing sanctions from the European Union unless it lifts steel tariffs introduced three years ago, which the World Trade Organisation has ruled illegal.

The textile ban had an immediate effect on the value of the US dollar, pushing the euro to an all-time high of $1.19 in Asia as the yen strengthened to 108 to the dollar on fears that renewed protectionism could hurt the US recovery.