EU and China to tackle thorny issues of yuan, trade at meeting ahead of G-20 meeting

By Gabriele Steinhauser, AP
Wednesday, October 6, 2010

EU, China to lock horns on yuan, trade

BRUSSELS — EU officials and Chinese Prime Minister Wen Jiabao are set to lock horns Wednesday over a range of vexsome economic issues, from exchange rates and trade rules to the Asian country’s growing influence in the world economy.

The planned meeting in Brussels comes a day after a summit of 48 Asian and European leaders at which the Europeans joined the U.S. in calling on Beijing to devalue its currency, the yuan, to support a global economic recovery.

The EU-China talks are considered a key stop ahead of next month meeting in Seoul of the Group of 20 rich and developing nations, which is tasked to resolve major regulatory issues in the wake of the 2008 financial crisis.

Wen will meet with EU officials, led by European Commission President Manuel Barroso, against a backdrop of speculation of a “currency war,” in which central banks push down the value of their currencies to make their exports more competitive.

Economic powerhouses such as Japan and Brazil have acted to stop their currencies from rising farther, as nations fight to sustain economic growth amid worldwide government budget cuts.

China has come under fire for its grip on the yuan, which has only risen marginally against the dollar since Beijing promised on June 19 to give market forces more influence on its exchange rate.

Against the euro, it has even lost value, sparking worries among European policy makers that a strong euro will hamper exports as the region tries to find its way out of the most severe economic crisis since World War II.

However, China is unlikely to yield much to diplomatic pressure.

Wen rejected a fast devaluation of the yuan this week and will likely stand firm on other economic issues.

The EU has accused Beijing of dumping cheap products on its market and has raised punitive tariffs on imports it says are illegally subsidized by the Chinese government.

Europe, like the U.S., is worried about its growing trade deficit with China, which reached €72.92 billion ($100.48 billion) in the first six months of this year, up from €67.16 billion a year earlier.

The EU is also keen on getting China to commit to caps on greenhouse gas emissions in its fight against climate change. So far Beijing has rejected any firm limits, arguing it needs to focus on economic development.

But Beijing is also seeking some concessions from Europe. Like other emerging markets, China has its eye on more seats on the International Monetary Fund’s governing board, a major decision-making forum that hands out billions of dollars around the world.

EU countries currently holds nine of the 24 seats on the board, but the U.S. has been pressing the EU to give a bigger voice to emerging nations in Latin America and Asia. The IMF is set to discuss the new distribution of power at its half-yearly meeting in Washington this weekend.

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