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EU-China tug-of-war summit ends in division

China needs stronger currency to rebalance economy: IMF
Washington (AFP) Oct 6, 2010 - China needs a stronger currency to boost domestic consumption, the IMF said Wednesday, adding to a growing clamour led by the United States and Europe for the yuan to appreciate at a faster pace. In its latest world economic outlook, the International Monetary Fund said for China, it was "critical to enhance the role of household consumption in domestic growth" and become less reliant on exports to drive the economy. "To the extent that a stronger Chinese currency eases this process, other surplus countries in the region could follow suit, which would facilitate the needed shift towards domestic sources of growth," the IMF said. The Washington-based lender maintained its 2010 gross domestic product forecast for China, which has raced past Japan to become the world's second largest economy, at 10.5 percent.

Growth in China would slow to 9.6 percent in 2011 due to government efforts to cool the sizzling property market and curb bank lending, the IMF said. In July, China allowed the release of an IMF report critical of its currency policy, in which the lender's staff charged that the yuan was "substantially" undervalued. The language in Wednesday's report was more muted. The IMF's renewed call for a stronger yuan comes amid growing pressure on Beijing to loosen its grip on the currency, ahead of the IMF's annual meeting beginning Friday, where the issue is likely to loom large. The United States and Europe -- struggling to recover from the global crisis -- have repeatedly butted heads with China over the yuan, which they claim is undervalued by as much as 40 percent and gives its exports an unfair advantage. A trio of top eurozone officials on Tuesday urged Chinese Premier Wen Jiabao to live up to a June vow to make the yuan more flexible, as US lawmakers pursue punitive sanctions against China over its currency policy.

IMF chief Dominique Strauss-Kahn has added his voice to the chorus of complaint, saying the yuan is undervalued and warning countries -- without naming China -- not to use their exchange rate policies as weapons. China pegged the yuan at about 6.8 to the dollar in mid-2008 but said in June that it would allow the unit to rise, partly to calm growing criticism from its key trading partners. Since then, however, the yuan's gains have been minimal while Wen has warned that allowing the currency to strengthen too much could wreck Chinese exports, putting at risk millions of jobs. On Monday, Wen called for stability in the exchange rates of major currencies -- a statement taken to mean there would be no change in Beijing's stance on the yuan.

The IMF, under growing pressure from Washington and others to do more to stop a wider dispute from erupting, said a stronger currency would help stem speculative capital inflows, without referring specifically to the yuan. "Where large current account imbalances may reflect an undervalued exchange rate, currency appreciation is the best response to capital inflows," it said. Beijing has been cracking down on "hot money", which enters and exits countries in search of swift profits and is considered risky because it often departs at the first sign of weakness in an economy. But a "coordinated" response by Asian nations was needed, the IMF added. "Resistance to currency appreciation by one economy could discourage others because of competitiveness concerns," said the report, which came after Japan intervened in the foreign exchange markets for the first time since 2004.
by Staff Writers
Brussels (AFP) Oct 6, 2010
China and the European Union wound up a tug-of-war summit Wednesday failing to bridge wide rifts on a gamut of issues ranging from trade to human rights.

"As in any true partnership, the EU and China have commonalities but also differences of approach," said EU president Herman Van Rompuy in a short statement released as the divisive one-day get-together wrapped up.

"This should not impede our joint will to bring the relationship to a higher level. We should be ambitious and make sincere efforts to achieve progress," he added.

There was no separate statement on the fractious summit from Chinese Premier Wen Jiabao as he flew off to Rome for a visit.

But a media conference that could have offered further explanation on the rifts was cancelled, officially for scheduling reasons.

"We realised during the talks there may have been little to say," a diplomat said.

At stake for the EU, which this week also hosted a Europe-Asia meeting gathering 46 nations, or almost 60 percent of the world population, has been a bid to nudge the emerging superpower to bend to global rules.

"With great power comes great responsibilities," said European Commission president Jean-Manuel Barroso.

Van Rompuy and Barroso said there had been "an open discussion" on the issue of human rights, dear to the EU's heart but contentious for Beijing. "We called for progress in this area, notably in the ratification of the International Covenant on Civil and Political Rights," they said in joint remarks.

The question of human rights, he added, "for us remains an important element of the dialogue with China."

But a joint declaration issued with China at the wind-up made no mention of rights.

In a rare show of divergence for a diplomatic encounter of this type, the summit had opened with both Van Rompuy and Wen openly and publicly stating "differences" between the two sides.

"It is true that between China and the EU there are still a number of major issues that have remained unresolved for a long time," said Wen.

"That is not in keeping with the fundamental interests of both sides," he added.

Van Rompuy had said the "differences" must not impede but "on the contrary, they should stimulate our discussion."

The final statement however failed to list areas of accord, instead running through the sticking points -- currency, trade and representation for emerging nations in global institutions.

An EU source told AFP that a bid to force China to revalue its currency, which the West says is helping flood the world with cheap Chinese exports, fell on deaf ears at a time when the euro has hit an eight-month high.

"We put our cards on the table," the source said. "We heard each other out and managed to establish a dialogue of sorts in the economic sphere.

"But it was not an easy summit."

Earlier, Wen had told a Europe-China business forum: "I say to Europe's leaders -- don't join the chorus pressing (China) to revalue the yuan."

A sharp yuan appreciation would "cause many Chinese companies to go bankrupt, casting people out of work... and creating social unrest," Wen insisted.

Van Rompuy and Barroso expressed to Wen "the need for a level playing field in China for our businesses," including the "opening up of public procurement."

Europe has threatened to make it tougher for Chinese companies to bag major contracts if it does not ease barriers.

While China appeared immovable on these issues, the pair indicated that, two days from the start of talks at the International Monetary Fund to agree a new board, Europe was not ready to give further ground on voting rights in the Washington-based lender of last resort.

"We underlined that enhanced representation should go hand in hand with enhanced responsibilities in global governance," the EU leaders said pointedly.

The EU-China meeting followed an EU-South Korea summit earlier Wednesday marked by the signing of a historic free trade pact, the first in a possible slew that Europe hopes to seal with Asia.



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TRADE WARS
Asian growth needs stronger currencies: IMF
Washington (AFP) Oct 6, 2010
China needs a stronger currency to boost domestic demand and reduce its reliance on exports, a rebalancing needed across Asia to ensure the region's long-term growth prospects, the IMF said Wednesday. In its latest world economic outlook, the International Monetary Fund said that for China, it was "critical to enhance the role of household consumption in domestic growth" to drive the economy ... read more







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