Published: Monday November 30, 2009 MYT 8:34:00 AM
Updated: Monday November 30, 2009 MYT 9:29:09 AM
China, please, for the sake of the world economy let the yuan strengthen
NANJING, China: European financial leaders on Sunday urged China to let its currency gain against the euro, for the sake of the world economy and its own future growth, but there was no sign the appeal would be heeded.
The plea to Chinese Prime Minister Wen Jiabao for faster movement on exchange rate reforms, to reverse the euro's climb against the yuan, or renminbi, came in meetings ahead of an EU-China summit on Monday in this eastern Chinese city likely to focus on the global economy and climate change.
European Commission President Jose Manuel Barroso joined financial leaders of the 16 countries that use the euro in impressing upon Wen and other Chinese economic planners the urgency for action to counter euro's rise against the yuan, which is linked to the weakening U.S. dollar.
"The fact is that because their currency is linked in some way to the dollar, this is causing problems in the European economy," Barroso told reporters after dining with Wen on Sunday.
Wen made no new commitments on hastening reforms of China's currency policies, he said.
Luxembourg Prime Minister Jean-Claude Juncker, who heads economic talks among the eurozone countries, joined with European Central Bank President Jean-Claude Trichet and Spain's Joaquin Almunia, the EU's monetary affairs commission, in calling for an "orderly and gradual appreciation" of the yuan.
As the dollar has weakened against the euro in recent months, so has the yuan, giving Chinese manufacturers an edge in overseas markets.
The upward pressure on the euro is a bane for exporting countries like Germany, the single-currency bloc's largest economy.
The U.S. and emerging economies likewise complain the weaker yuan means Chinese products cut into their fair share of the global marketplace.
Barroso credited Beijing with helping the global recovery by powering its own rebound with a formula of massive spending, ample credit and policies aimed at stimulating demand.
But faster movement on the currency issue is needed to cope with wider trade, investment and spending imbalances, he said.
"Major imbalances because of trade or because of currencies can create problems in the future if they are not fully addressed," he said.
Faster change would give China more leverage over its own economic policy, and give its citizens greater purchasing power, boosting domestic demand - a key requirement for balanced, sustainable growth, the European leaders said.
"It would be good from all angles of vision, the bilateral relationship, the multilateral relationship and, we trust, the interests of the Chinese authorities ... to have an orderly and gradual appreciation of the (yuan)," said Trichet.
China has pledged to allow the yuan's value to eventually be set by market supply and demand, but has balked at major changes its leaders say might destabilize the financial system.
"I can't say I am more optimistic than I was before I came here," Juncker said, though he added he felt the exchange was worthwhile.
After Sunday's meetings, the official Xinhua News Agency reiterated a comment by Beijing's vice foreign minister, Zhang Zhijun, pledging to "give play to the fundamental role of market supply and demand in setting the yuan exchange rate, and keep it basically stable around reasonable, balanced levels."
In the last month or so, the euro has risen to a 15-month high of $1.5061. Any successful intervention to stem the dollar's fall against the euro would need to involve the Chinese.
The yuan began gaining against other major currencies with a set of exchange rate reforms introduced in July 2005.
But after rising nearly 20 percent against the U.S. dollar, the Chinese currency has hovered around 6.83 to the dollar for more than a year as Beijing sought to protect local exporters hammered by the global economic crisis.
On Friday, the dollar gained against the euro briefly as currency markets gyrated after Dubai World, a government investment fund with debts of about $60 billion, asked creditors to postpone payments until May.
But the reprieve for the euro was expected to be short-lived, given the immense borrowing needs of the U.S. government, which relies heavily on foreigners to finance budget deficits exceeding $1.4 trillion annually. - AP