China, Euro Zone to Work on Currencies, Trade

China and the 13 countries using the single European currency agreed on Tuesday to cooperate to reduce global economic imbalances while heading off lurches in exchange rates.

The pledge was contained in a brief statement issued by the People's Bank of China after the central bank's governor, Zhou Xiaochuan, met a trio of leading euro zone officials to review their complaints that the yuan needs to rise much faster.


"The two sides agreed to make a joint effort and take comprehensive measures to step up structural economic adjustments, prevent big swings in foreign exchange rates and make a contribution to an orderly adjustment of global imbalances," the statement said.

Zhou met European Central Bank President Jean-Claude Trichet; Luxembourg Prime Minister Jean-Claude Juncker, who is also chairman of the Eurogroup of finance ministers; and Joaquin Almunia, the EU's monetary affairs commissioner.

EU officials are dismayed by the yuan's steady slide against the euro, which they say is exacerbating global imbalances and fuelling protectionism in Europe.

European steelmakers filed a new anti-dumping complaint against imports of steel from China on Tuesday, a day before a China-EU summit that will focus on the yuan rate and other growing trade frictions.

EU Trade Commissioner Peter Mandelson urged Beijing to abide by the rules of the World Trade Organisation (WTO), saying the EU would treat it like any other major trading partner -- a veiled warning that it might lodge a formal complaint with the trade watchdog.

"This is the only way that we will be able to sustain the political support we need in Europe to meet the challenges and changes that an open economic relationship with China imposes on us," Mandelson wrote in Tuesday's China Daily.

Getting Tough

Mandelson said the EU wanted an end to China's managed currency.

"Even if revaluation would not, in itself, solve our trade deficit, it would help cool an overheating heavy industry sector that is swollen with overcapacity and artificially cheap capital," Mandelson wrote.

French President Nicolas Sarkozy made much the same argument at meetings on Monday with President Hu Jintao and Premier Wen Jiabao.

The toughening of the EU's tone coincides with a surge in its trade deficit with China, which Brussels expects to rise nearly 30 percent this year to 170 billion euros ($253 billion).

The euro zone saw its deficit with China jump 25 percent in the first eight months to 70 billion euros.

But China, while expressing a willingness to discuss the yuan and trade imbalances, is standing its ground.

In talks with Sarkozy, Premier Wen Jiabao reiterated his well-worn line that Beijing would introduce greater currency flexibility over time, but at its own pace.

"It is China's set policy to build up an exchange rate system based on market supply and demand," Foreign Ministry spokesman Liu Jianchao quoted Wen as saying, according to the Xinhua news agency.

"China will unswervingly follow the principles of initiative, controllability and gradualism to promote foreign exchange reform in an orderly manner and to increase continuously the flexibility of the yuan's exchange rate," he added.


China can point to a further 10 percent rise in the yuan against the dollar on top of its initial 2.1 percent revaluation in July 2005. The central bank, which keeps the currency on a tight leash, let it rise on Tuesday to a post-revaluation high of 7.3840 per dollar.

The EU, though, argues that the yuan's exchange rate has barely changed when measured against a basket of currencies of China's main trading partners.

Juncker said on Nov. 16 that the yuan was undervalued by 20 to 25 percent, handing China an unfair trade advantage.

The exchange rate is just one in a range of issues testing the EU's generally cooperative approach on trade and investment.

The EU also says Beijing needs to do more to improve its record on food and product safety, as well as to protect intellectual property rights.

As European leaders arrived in Beijing, China said it wanted them to back a strong statement on Taiwan, the self-governed island that China says must accept eventual reunification.

Beijing fears Taiwan will use the run-up to Beijing's 2008 Olympic Games to press for wider international recognition, even outright independence.

Another Chinese Foreign Ministry spokesman, Qin Gang, said the EU should clearly oppose any moves towards Taiwanese independence.

"As a comprehensive strategic partner, we also hope the EU will be entirely unambiguous on the issue of opposing Taiwan independence," Qin told a news conference.

China has claimed sovereignty over Taiwan since the end of the Chinese civil war in 1949. Beijing has vowed to bring the island back under mainland rule, by force if necessary.