China and the 13 countries using the euro will “take comprehensive measures” to “avoid big swings in currency movements” and contribute to “an orderly adjustment of global imbalances”, according to a statement issued by the Chinese central bank after a meeting with the EU’s top finance officials.
The statement, published on 27 November, remained vague about how the two sides would cooperate, but came as a sign that Beijing acknowledges the EU’s concerns regarding the euro’s unprecedented strength and the growing trade deficit it has accumulated with the booming Asian economy.
“We understand the EU’s concern on the issue and we will strengthen dialogue,” said foreign ministry spokesman Qin Gang, after a meeting between China’s central bank governor Zhou Xiaochuan and European Central Bank President Jean-Claude Trichet, Jean-Claude Juncker, Luxembourg’s prime minister and chair of the Eurogroup of finance ministers, and EU Economic Affairs Commissioner Joaquín Almunia.
Together with French President Nicolas Sarkozy, who has just returned from a three-day trip to Beijing, EU Trade Commissioner Peter Mandelson has called for “a major change in China’s approach to […] curbing overcapacity”. Both have been pushing for China to agree to allowing its currency – the yuan or renminbi (RMB) – to rise more rapidly in value, in order to stem the tide of cheap goods flowing onto European markets.
Nevertheless, hopes were dashed when Prime Minister Wen Jiabao said China remained determined to move at its own pace towards enabling a more flexible exchange rate.
Europeans claim the yuan is purposefully undervalued by as much as 20-25%, giving China an unfair trade advantage, but Beijing says the yuan’s flexibility has already grown a lot since it was partly un-pegged from the US dollar in 2005.
“The flexibility has been enhanced a great deal […] But because of the depreciation of the US dollar, the RMB has depreciated against the euro,” said foreign ministry spokesman Qin Gang.
Meetings between China and the EU will continue today (28 November) in the hope of finding solutions to a range of sources of “frustration” in Europe, including barriers to market access faced by EU companies, intellectual property theft and low product safety standards.
In a speech on 27 November, Mandelson warned China that it would lose out if it failed to turn around its trade and investment environment. “Companies are getting more cautious about bringing their money and business here because the regulatory environment lacks transparency […] Investment caps, unpredictable treatment and regulatory issues are driving away productive investment,” he stressed.