EU unlikely to sway China on currency

 

ONLY DAYS after US president Barack Obama left Beijing without a commitment from China to let the yuan exchange rate strengthen, EU leaders looked set to go home empty-handed after trying to convince China of the benefits of a stronger yuan against the euro.

Chinese prime minister Wen Jiabao, ahead of talks today in the eastern city of Nanjing, stuck to the line that China would gradually increase the flexibility of the yuan’s exchange rate.

“We hope the world’s major reserve currencies can also remain stable,” he told the Xinhua news agency before meeting three of the EU’s top financial leaders – Eurogroup president Jean-Claude Juncker, European Central Bank president Jean-Claude Trichet and European commissioner for economic and monetary affairs, Joaquin Almunia. “Overly early exit [from current stimulus policies] will result in [current] achievements being lost,” Mr Wen said.

In the past six months, the yuan has fallen 6.5 per cent against the euro. China has kept its currency at about 6.83 against the dollar since July 2008. The EU leaders are keen for a reversal in the euro’s climb against the yuan, or renminbi, as they are worried a rising euro could hamper euro zone recovery as it tries to compete with exports from China.

Both Europe and the United States complain that China is manipulating its currency to gain an unfair trade advantage.

“We think an orderly and gradual appreciation of the renminbi would be in the best interests of China and of the global economy,” said Mr Juncker. “I can’t say I’m more optimistic” about yuan appreciation, he said.

China is committed to allowing the value of the yuan to be set by the markets, but has not yet made some of the necessary reforms to allow the currency to trade freely, saying they could lead to instability in the financial system.