By Bloomberg News
Nov. 30 (Bloomberg) -- Chinese Premier Wen Jiabao rejected “unfair” calls for the yuan to appreciate and European leaders acknowledged that they had failed to shift the nation’s stance on its currency.
“Some countries are now calling for yuan appreciation while imposing trade protectionism on China, which is unfair and actually limits China’s development,” Wen said at a briefing in the Chinese city of Nanjing today. In the financial crisis, “a stable yuan is helpful to the development of the Chinese economy and the world’s economic recovery,” he added.
European officials indicated yesterday that they failed to convince China to loosen controls on the yuan that shelter Chinese exporters from the U.S. currency’s slide and make euro- region goods relatively less competitive. The euro has surged about 20 percent versus the dollar since Feb. 18, undermining the region’s recovery from the worst slump since World II. The yuan is effectively pegged to the dollar.
“China’s not yet convinced about a global recovery next year,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong. “If the global recovery doesn’t come, then a stable currency will be key to providing some support for exporters.”
Twelve-month non-deliverable yuan forwards rose 0.2 percent to 6.6275 per dollar as of 12:15 p.m. in Shanghai as the dollar declined against Asian currencies. China has kept the yuan at about 6.83 against the U.S. currency since July 2008. In the past year, the yuan fell more than 14 percent against the euro.
Lacking in Optimism
Wen reiterated that China will keep the yuan basically stable and carry out currency reform at its own, gradual pace.
“I can’t say that I’m more optimistic than I was before I came here” on gains by the yuan, or renminbi, Jean-Claude Juncker, who chairs a group of euro-area finance ministers, said in Nanjing yesterday. Chinese officials had explained that it was difficult to make the case for “immediate renminbi appreciation” with 40 million people living on less than $1 a day, Juncker said.
“An orderly and gradual appreciation of the renminbi would be in the best interests of China and the European economy,” he added.
European officials met Wen, Chinese National Development and Reform Commission Chairman Zhang Ping, People’s Bank of China Governor Zhou Xiaochuan and Finance Minister Xie Xuren.
International Pressure
Chinese officials said they will continue currency reforms begun in 2005, when a fixed exchange rate ended, European Central Bank President Jean-Claude Trichet said yesterday. Trichet told Bloomberg Television: “I don’t over-interpret our discussions. It is their decision and we will see.”
The Europeans’ visit comes after U.S. President Barack Obama left Beijing this month without a commitment to let the exchange rate strengthen. International pressure is growing on China after the Group of 20 nations, of which it is a member, agreed in September to make the world economy less reliant on Chinese savings and U.S. demand.
“You shouldn’t expect the Europeans to have significant influence” on China’s currency, said Joerg Kraemer, chief economist at Commerzbank AG, Frankfurt. “Even the U.S. hasn’t managed it.”
Obama told President Hu Jintao and Wen that the U.S. expects progress on making the yuan “more flexible” by mid- 2010, according to Jon Huntsman, the American ambassador. That’s when talks between the U.S. State and Treasury secretaries and their Chinese counterparts will take place.
‘Gentle Appreciation’
“China will only adjust on its own terms and in its own time,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “It’s decided that now is not the time to do that.”
While China is focused on its domestic agenda and “unlikely to do anything” in response to international pressure, authorities may allow a “gentle appreciation” of the yuan next year before the U.S. Federal Reserve starts increasing interest rates, Maguire said.
While the 16-member euro-region economy returned to growth in the third quarter, the euro’s ascent is making exports less competitive abroad and eroding companies’ earnings. European Aeronautic, Defence & Space & Co., the owner of Airbus SAS, said on Nov. 16 that third-quarter earnings slumped 77 percent, partly because of a weaker dollar.
Deutsche Telekom AG Chief Executive Officer Rene Obermann said on Nov. 5 the company is looking “very carefully” at developments in currency markets. The dollar’s depreciation and other exchange-rate movements cut third-quarter revenue at Europe’s biggest phone company by about 100 million euros compared to the second, spokesman Andreas Leigers said.
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