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Maintaining the relative stability of major reserve currencies and ensuring fiscal sustainability are important in order to achieve strong and balanced global growth, China and India said on Thursday.

In a statement released after a regular meeting of vice-finance ministers, the two countries expressed concern over possible capital flow disorders resulting from monetary policy adjustments, which they said may lead to financial risks.

Asian economies continue to recover robustly but some have exhibited signs of overheating and inflationary pressure, the statement said, without naming names.

“Both sides agreed that it remains an arduous task to ensure a robust global economic recovery, which requires continued efforts of the international community,” said the English-language communique, posted in the website of the Ministry of Finance of China.Reuters reported that the US Commerce Department is expected to announce whether it will investigate if China’s currency practices subsidize its exports and warrant US duties in response.

The decision looms in a case brought by US manufacturers against Chinese made aluminium products used in the US construction and automobile sectors. The United States imported more than USD 500 million of the aluminium goods last year.

The department, which last week announced plans to tighten its procedures against unfairly traded goods, risks an ugly spat with Beijing if it decides to launch an investigation.

But with US lawmakers eager to show they are tackling high unemployment in a congressional election year, the department could provoke Congress into passing legislation aimed at reducing imports from China if it decides it does not have strong legal grounds to investigate the currency matter.

In a petition filed almost 5 months ago, the United Steelworkers union and aluminium extrusion producers in nine states asked the Commerce Department to impose countervailing duties over China’s yuan which some economists estimate is undervalued by as much as 40%.

Reversing a trend that had allowed the yuan to appreciate slightly, the Chinese central bank has guided the currency lower since August 9 when it hit a high of 6.7644 to the dollar its strongest since a landmark revaluation in July 2005.

The Commerce Department is due to make a preliminary decision on Tuesday on the petition which also alleges other government subsidies that the US manufacturers and workers want offset by countervailing duties.

Mr Gilbert Kaplan attorney of King & Spalding said that “I think it would be both necessary and appropriate for them to say something about currency. King & Spalding has been working with the Aluminum Extrusions Fair Trade Committee on its case. Although Commerce Department officials have noted the complexity of the issue, there are statutory decisions and they are required to make decisions.

Mr Kaplan said that he hoped for an announcement that would allow currency investigation to begin in the aluminium case and a second case involving coated paper from China.

The issue is expected to turn on whether the Commerce Department thinks it could persuade US courts, as well as the World Trade Organization that China’s currency actions meet the legal definition of providing a subsidy.

Under both US and WTO law, a subsidy is defined as a financial contribution from the government that provides a benefit to a specific industry. In the aluminium and coated paper cases, US petitioners argue the benefits that come from the Chinese government controlling its currency are specific to Chinese exporters since they account for about 70% of the country’s foreign exchange transactions.

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This post was submitted by rishi maurya.

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