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EU ministers back gradual revaluation
(Bloomberg/chinadaily.com.cn)
Updated: 2006-04-09 19:11

European finance ministers endorsed China's policy of allowing its
currency to strengthen gradually and pledged not to pressure Beijing for
a speedier revaluation, Bloomberg reported on Sunday.

Luxembourg's Prime Minister Jean-Claude Juncker (L) talks with China's
Finance Minister Jin Renqing during an ASEM Finance Ministers' meeting in
Vienna April 9, 2006. Asian and European Finance Ministers met to discuss
issues concerning globalisation on Sunday. [Reuters]

"It's up to the Chinese to decide," said Dutch Finance Minister Gerrit
Zalm in an interview with Bloomberg at a meeting of economic policy
makers from 38 European and Asian nations in Vienna, Austria. "Gradual is
always better than fast."

While European officials agreed with their US counterparts that the yuan
is somewhat weak, they said that pressuring Beijing for marked yuan
change risked backfiring. Europe's strategy reflects concern that a
sudden jump in the yuan value could boost the euro and undercut their
exports that are driving European growth, say analysts.

The yuan has appreciated a further 1.3 percent against the US dollar
since China's July 21 decision to replace a decade-long peg to the US
dollar with a basket of currencies and allow its exchange rate to rise
2.1 percent.

"We don't want to lecture publicly our Chinese and Asian friends. We
don't think that it makes sense to be too outspoken," Luxembourg Prime
and Finance Minister Jean-Claude Juncker said on Sunday. "We are happy
with the monetary decision China has taken, we think more could be done."

One of China's top currency regulators on Saturday rejected calls to let
the yuan strengthen too quickly, because it could bring destructive
effects on Chinese and world economy.

"In our foreign exchange reform, controllability is the most important
factor, and the ability for us to initiate the reform," Wei Benhua,
deputy director of the State Administration of Foreign Exchange, said in
Vienna. "The third most important thing is graduality."

However, the United States government has been calling for faster yuan
changes. "More needs to be done," US Treasury Secretary John Snow said
"The Chinese, while they're moving, are moving too cautiously."

Nevertheless, Austrian Finance Minister Karl-Heinz Grasser, who is
chairing the Vienna talks, said little would be achieved by bullying
China.

"It's much better to have a discussion with colleagues to try and
convince what is necessary for the world economy, and not so much push
from outside like it was done in the past," he told reporters.

Exports are the main source of power for the dozen-nation euro-area
economy, with their share of gross domestic product rising to 41 percent
today from 30 percent in 1991. European officials and economists worry a
hasty shift in China's yuan exchange rate could undermine foreign demand
by roiling currency markets, pushing the dollar down and the euro up.

An "abrupt" change in the yuan "might risk an excessive additional
downward movement of the dollar against the euro," the European
Commission said in a confidential planning document for this weekend's
talks obtained by Bloomberg News.

The US is the biggest market for the euro region. European exports of
184.8 billion euros ($223 billion) to the US last year dwarfed exports to
China of 43.5 billion euros.

European governments have sought to whittle away at China's trade
advantages, made possible by China's low labor cost, by imposing tariffs
or filing complaints to the World Trade Organization. Last month the EU
imposed duties on some Chinese leather shoes, following last year's
decision to set limits on Chinese clothing imports.

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