BEIJING (Reuters) - China’s yuan is at an appropriate level currently and two-way fluctuations in the currency will not necessarily cause disorderly capital flows, a senior official at the People’s Bank of China told Reuters on Tuesday.

FILE PHOTO: A man sits in front of the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, China October 17, 2013. REUTERS/Kim Kyung-Hoon

The yuan has weakened nearly 2.4% since U.S. President Donald Trump threatened early this month to impose more tariffs on Chinese goods from Sept. 1, though there are signs China is trying to stem the declines.

“The current level of RMB exchange rate is appropriately aligned with fundamentals of China’s economy and market supply and demand,” Zhu Jun, head of the central bank’s international department, said in an interview with Reuters.

Zhu said China was “shocked” by the U.S. Treasury Department’s move last week to label China a currency manipulator, hours after Beijing let the yuan slide past the key 7-per dollar level to its lowest level since the global crisis.

But Zhu asserted that China will be able to “navigate all scenarios” arising from the Trump administration’s decision to label it a currency manipulator for the first time since 1994, which rattled global markets.

China is unlikely to face serious consequences from getting that label given the apparent lack of Group of Seven and International Monetary Fund support for Washington’s move, former and current U.S. and G7 officials said.

But some Chinese advisers and former officials have sounded alarm bells over a possible wider conflict between China and the United States. The year-long trade war between the world’s two largest economies has already spread beyond tit-for-tat tariffs on goods to other areas such as technology and currency.

UPGRADING THE TRADE WAR?

The real aim of the U.S. currency manipulator label is to disrupt China’s financial markets and its economy, said Chen Yuan, former chairman of the China Development Bank - the country’s biggest policy bank.

“The U.S. step to list China as a currency manipulating country is an important action to upgrade the trade war into a financial war,” Chen, who remains an influential figure on economic issues, told a forum over the weekend.

Zhu of the central bank told Reuters that in the short run, external shocks will play a role by influencing the yuan’s movements.

“That said, as long as RMB moves in an orderly manner based on market supply and demand, such movements in either direction do not necessarily mean disorderly movement of capital flow,” she said. The yuan is also known as renminbi, or RMB.

Zhu reiterated that recent yuan volatility was a normal market reaction to escalating trade tensions, adding “If it’s preventing such responses that would constitute real manipulation.”

Analysts say a weaker yuan could help China’s ailing exporters to cope with higher U.S. tariffs amid an escalating trade war, but any sharp yuan drops could fuel capital outflows as the world’s second-largest economy faces increased headwinds.

REPEATED PLEDGES

Chinese leaders have repeatedly pledged that they would not resort to competitive currency devaluation to support exports, or use the currency as a tool to cope with trade disputes.

Zhu said the yuan will be supported by China’s solid economic fundamentals, a stable debt ratio, contained financial risks, adequate foreign exchange reserves, and favourable interest rate spreads between China and major advanced economies.

“Over the medium and long term, we have full confidence in RMB as a strong currency,” she said.

In the second quarter, China’s annual economic growth pace slowed to a near 30-year low of 6.2%. Many analysts had expected a steadying in the second half as earlier stimulus measures started to kick in, but Trump’s latest tariff threat is likely to further pressure exporters and their domestic supply chains.

China’s foreign exchange reserves - the world’s largest - fall by $15.54 billion in July to $3.104 trillion, central bank data showed, amid rising trade tensions.

China burned through $1 trillion of reserves supporting the yuan in the last economic downturn in 2015, during which it devalued the currency in a surprise move. Since then, Beijing has shored up restrictions on capital outflows.