China Could be Moving Toward Stronger Yuan: EU

China could be moving in the direction advocated by Europe of a stronger yuan, European officials said on Wednesday.

EU Trade Commissioner Peter Mandelson (AP Photo/Elizabeth Dalziel)
Elizabeth Dalziel
EU Trade Commissioner Peter Mandelson (AP Photo/Elizabeth Dalziel)

"We were told that this was something which would be examined," European Central Bank President Jean-Claude Trichet told a news conference following two days of talks in Beijing on exchange rate and trade issues.

The ECB and the People's Bank of China would set up a working group at once to examine currency issues, which have become a major source of friction between China and the EU.

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.

"We have to correct this obvious imbalance," Eurogroup Chairman Jean-Claude Juncker told the news conference.

The EU has been taking a tougher line on currency and trade issues with China after coming to a judgment that quiet diplomacy was not yielding quick enough results.

The European officials held talks with central bank governor Zhou Xiaochuan and Premier Wen Jiabao to press their case that the yuan needs to rise much faster.

Trichet said the EU appreciated Beijing's push toward making domestic consumption a bigger engine of growth.

"We would certainly think that as part of the overall orientations that have been taken, part of it would be accelerating the appreciation of the currency in particular against the euro," Trichet said.

"It would be good both for the Chinese interests and sustainable global prosperity," he added.

The EU's monetary affairs commissioner, Joaquin Almunia, chimed in, saying China needed to make the yuan more flexible.

Beijing should not focus only on the relationship between the yuan and the dollar, he said. "They have promised us to think about these divergences of the exchange rate."

The 27-member EU expects its trade deficit with China to rise nearly 30 percent this year to 170 billion euros ($253 billion).

The 13 countries using the euro saw their deficit with China jump 25 percent in the first eight months to 70 billion euros.

China, which keeps the yuan on a tight leash, has consistently promised to eventually let the currency trade more freely. It points out that the yuan has gained a further 10 percent against the dollar on top of its initial 2.1 percent revaluation in July 2005.

The EU retorts that the yuan, because of its link to the dollar, has fallen more than 10 percent against the euro. The yuan's exchange rate, moreover, has barely changed when measured against a basket of currencies of China's main trading partners.