Steinbrueck Says China Didn't Commit on Yuan Gains

By Catherine Yang and Rainer Buergin

Sept. 4 (Bloomberg) -- German Finance Minister Peer Steinbrueck said Chinese officials didn't commit to a faster appreciation of the yuan during discussions in Beijing this week.

``I didn't get any commitment and if I would have gotten one I wouldn't tell you because I would influence the markets,'' Steinbrueck said in an interview with Bloomberg Television. ``We have to prevent disorderly adjustments and exchange rates should follow economic fundamentals.''

Steinbrueck said on Sept. 1 that the yuan's exchange rate with the euro doesn't reflect the relative strengths of the Chinese and European economies. China has restricted the yuan's gains against the dollar to help exporters and small businesses after four quarters of slowing economic growth.

Steinbrueck said the yuan's exchange rate against the euro ``played a role'' in his discussions with Chinese Vice Premier Li Keqiang, Finance Minister Xie Xuren and central bank Governor Zhou Xiaochuan. His Chinese counterparts pointed out that the yuan has appreciated against the U.S. dollar and made no reference to the euro-yuan exchange rate, the finance minister said.

Steinbrueck repeated language in communiqués published by the Group of Seven nations stating that ``abrupt'' foreign exchange-rate changes are ``undesirable'' and currency values should reflect ``economic fundamentals.''

Yuan's Gains

On April 11, the G-7 said they ``welcome China's decision to increase the flexibility of its currency'' while urging ``accelerated appreciation of its effective exchange rate.''

The yuan's gains against the euro have accelerated since then, while slowing versus the dollar. China's currency has strengthened 9.1 percent against the euro in the third quarter, following a 2.5 percent gain in the second quarter and a 3.2 percent loss in the first.

In view of the yuan's gains against the euro, Steinbrueck ``can't really be surprised'' by his Chinese counterparts' reaction, Dorothea Huttanus, head of currency research at DZ Bank AG, said in an interview today.

``The short-term gains in the yuan may be less than the finance minister wants,'' she said. ``His remit includes trying to persuade the Chinese to commit to a stronger currency over the longer term.''

Against the dollar, the yuan rose 2.3 percent last quarter after climbing 4.2 percent in the first three months of 2008.

The People's Bank of China has managed the yuan's exchange rate against a basket of currencies, including the euro, the yen and the British pound, since a peg to the dollar ended in 2005.

Chinese, European Growth

China's economy grew 10.1 percent in the second quarter from a year earlier, the slowest pace in two years, as demand for exports waned. Europe's grew 1.4 percent from a year earlier, the weakest rate since 2005, and shrank 0.2 percent from the previous three months.

German exporters have sought a bigger share of bilateral trade with China. German sales comprised 29 percent or $35.8 billion of all trade with China in 2007, according to the Berlin-based Foreign Office's Web site. Rates of growth in total trade between the partners cooled in 2007 to 9 percent from an average of 20 percent between 2000 and 2006, it stated.

Steinbrueck renewed his offer to the Chinese to play a bigger role in international economic affairs, particularly the regulation of financial markets. He renewed an invitation for China to increase its participation in negotiations within the Financial Stability Forum, a grouping of market regulators.

``Not a single problem can be solved without the Chinese,'' Steinbrueck said. ``I have asked them to engage in this discussion.''

To contact the reporters on this story: Catherine Yang in Hong Kong at cyyang@bloomberg.net; Rainer Buergin in Beijing at rbuergin1@bloomberg.net.