Union will seek adjustment of yuan at summit

Date: 02/12/04

EU officials have pledged to avoid any hints of “megaphone diplomacy” at next week's EU-China summit, despite their concerns about the way the Chinese currency, the yuan, is pegged to and falling with the value of the dollar on the foreign exchange markets.

As the dollar has slumped to record lows of 1.32 euro in the past week, the decline in the Chinese currency and other Asian currencies which are pegged to it has raised fears about the outlook for the growth of the EU economy. The rising value of the euro makes EU exports more expensive and imports cheaper, so weakening further demand for domestically produced goods.

Whereas top US officials have for months been pressing for China to revalue the yuan in order to help reduce the &036;500 billion US trade deficit, the EU has taken a different tack.

Privately, European officials state that an upward adjustment of the yuan would help to rebalance a world economy that has been too dependent on US import demand for its growth.

But, they say, the EU is paying attention to the challenges China is facing and trying to persuade the Chinese that this would be in their own interests.

China is also being encouraged to recognize that, as the world's fourth biggest economy (it overtook the UK last month), it has an interest too in avoiding a dollar crisis.

Preview of the EU-China summit on 8 December 2004 in the Hague regarding the concerns over the Chinese currency's undervaluation.