Euro zone officials: China yuan should strengthen

AP News
Posted: Nov 29, 2009 5:45 AM

China should allow its currency to strengthen against the euro and other major currencies, for its own sake as well as that of the global economy, top finance officials of the single-currency euro zone said Sunday.

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.

"We think an orderly and gradual appreciation of the renminbi would be in the best interests of China and of the global economy," said Luxembourg Prime Minister Jean Claude Juncker, who heads economic talks among the 16 countries that use the euro.

The meetings come amid worries the rising euro could derail the recovery of a region competing with exports from China, whose currency is linked to the weakened U.S. dollar.

Juncker and fellow euro zone leaders described the discussions with Wen, China's central bank governor Zhou Xiaochuan and other top economic officials as "frank but friendly."

There was no immediate word from the Chinese on their response to the appeal for a respite from the upward pressure on the euro, which is a bane for exporting countries like Germany, the single-currency bloc's largest economy.

In the last month or so, the euro has risen to a 15-month high of $1.5061, and any successful intervention to stem the dollar's fall against the euro likely has to involve the Chinese.

"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 a policy change in July 2005, the yuan gradually gained against the dollar, but that trend halted in mid-2008 as plunging demand due to the global financial crisis walloped Chinese exporters, prompting Beijing to keep the yuan at a level of about 6.83 to the dollar.

As the dollar has weakened against the euro in recent months, so has the yuan, giving Chinese manufacturers an edge in overseas markets.

Now that China's economy is leading a nascent global recovery, with growth forecast to exceed 9 percent in the final quarter of 2009, the euro zone leaders said it was time for a change.

"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 European Central Bank President Jean-Claude Trichet.

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.