Europe steps up pressure on China over Yuan policy

Senior European officials urged China to let the Yuan appreciate at an Asia-Europe summit in Brussels on Tuesday, claiming Chinese authorities are keeping the currency low to maintain their export advantage.

An employee stands next to stacks of yuan banknotes at a Bank of China branch in Hefei, Anhui province. Reuters

Chinese premier Wen Jiabao sat down with top officials from the 16-country euro bloc to discuss currency issues on the sidelines of an Asia-Europe summit.

“We noted that the evolution in terms of the effective exchange rate, also vis-à-vis the euro, was not exactly what we would have hoped ourselves,” European Central Bank President Jean-Claude Trichet said at a news conference. “The exchange-rate flexibility is very much in the interests of China.”

At the same news conference, European commissioner for Economic affairs Olli Rehn also ramped up the pressure on China.

“If the euro continues to bear a disproportionate burden in the adjustment of global exchanges rate, the recovery of the euro-area economy might be weakened,” he said.

Such direct reference to China is a departure from EU officials' custom of not naming individual countries.

Although China has pegged the yuan at about 6.8 to the dollar for the past two years, its central bank in June indicated it would allow the yuan to rise. However, Wen has since admitted that a huge rise in the value of the yuan would stir great social unrest in China.

On the sidelines of the summit, Chinese and Japanese leaders held brief fence-mending talks in Brussels after one of their worst diplomatic crises in decades.

Japan’s Prime Minister Naoto Kan and Wen met to break the ice after months of bitter quarrelling over the arrest of a Chinese trawler by Japanese authorities.

Japanese authorities last month released the Chinese captain who was arrested in disputed waters between the two Asian giants.