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G8 Leaders to Avoid Bashing China On Exchange Rates

The Group of Eight rich nations will be free to raise concerns about China's yuan currency at a
June 6-8 summit but the group does not plan a statement on foreign exchange, a senior German official said on Tuesday.

Host Germany wants to avoid bashing of individual countries and does not intend to "put China in a corner," the official added before the meeting of G8 leaders in the Baltic resort of
Heiligendamm.

China is under heavy pressure from the United States in particular to allow its currency, which critics say is artificially undervalued, to appreciate at a faster pace to help
ease trade imbalances.

"Of course it would be wrong to neglect some concern here And there about currency issues, vis-a-vis the yuan, I would say," the German official said.

"But what I also want to reiterate is that it is not our intention, at least not from the German presidency, to put China in a corner here and to bother you too much with this question."

Raising the Issue

French President Nicolas Sarkozy aims to discuss currencies at an opening summit session and will also raise the issue when he meets Chinese President Hu Jintao on the sidelines of the
gathering, a presidential source said on Monday.

Asked to confirm there would be no official G8 statement on exchange rates and in particular the yuan, the German official replied: "At the present time I can confirm that."

"The world economy is in good shape and things are not that dramatic at the moment," the official added. "Although at the same there are tasks which remain to be done."

He cited the U.S. trade and budget deficits and the need for reform in Europe and Japan. Changes were also required on the part of Russia, and "from China, if you think of the issues of
large currency reserves and exchange rate developments."

"Even though I don't think that the issue of exchange rates will be emphasised the way it once was," the official added.

German Chancellor Angela Merkel will host the summit, the highpoint of the country's presidency this year of the G8 club, whose other members are the United States, Russia, Japan, Britain, France, Italy and Canada.

More Progress Needed

In a background report prepared for the meeting, German experts said that while China had made some progress on foreign exchange rates, more needed to be done.

"In China, there is progress towards a somewhat strong market-determined exchange rate ... but there must be more progress made here," said the report, entitled "Growth and
Responsibility."

Global imbalances posed risks to the world economy, the report added.

"The readiness of international investors to finance the U.S. current account deficit could fade, and thereby initiate a process whereby interest rates rise significantly, the U.S. dollar depreciates strongly and a significant slowdown of the U.S. economy would affect the rest of the world," it said.

The report noted, however, signs of a general improvement in global current account figures.

"There are signs that global current account imbalances will not widen in the coming months. In the U.S., the real estate market has cooled down somewhat and the consolidation of public
finances is making significant strides," it said.

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