"The danger of a trade war has appeared on the horizon," Bruederle told reporters travelling with him on his two-day trip to China, which was to include stops in Beijing and Shanghai.

"The danger is that complaints about currency undervaluing lead to retaliatory measures, which could eventually turn into a trade war," the minister said, without specifically naming any country.

Beijing has come under increasing pressure from its trading partners in the United States and Europe to allow the yuan to appreciate at a faster pace. Critics say the unit could be undervalued by as much as 40 percent.

The US House of Representatives last month passed a bill that would expand the Commerce Department's powers to slap tariffs on China for currency manipulation, rather than just outright subsidies.

The legislation must still go through the Senate and eventually be signed by President Barack Obama in order to pass into law.

Bruederle said while China was unlikely to ever have a completely flexible exchange rate, "a bit more flexibility would be desirable".

The spectre of a global currency war dominated the annual meeting of the International Monetary Fund in Washington over the weekend, but no agreements were reached.

"We must not allow the situation to get out of hand, or turn our backs on free trade," Bruederle said, adding that he saw himself as an "ambassador, perhaps even a missionary, for the fight against protectionism".

Bruederle said his talks with Commerce Minister Chen Deming and Zhang Ping, the head of the country's top economic planning agency, the National Development and Reform Commission, focused on "management of liquid assets".

China has the world's largest foreign exchange reserves, which surged to a record 2.454 trillion dollars at the end of June, according to the central bank.

Trade between China and Germany, the world's top two exporting nations, has grown rapidly -- to 91 billion dollars last year, up from 41 billion dollars in 2001, according to Chinese data.

However, in the past few years, the trade balance has tipped decisively in China's favour, with Chinese exports to Germany totalling 55 billion dollars last year, while trade in the other direction amounted to 36 billion dollars.

Bruederle will replace ailing German Finance Minister Wolfgang Schaeuble at upcoming Group of 20 summit in South Korea, where he said he hoped the world's major economies would come up with "reasonable solutions".

After his stop in China, which will include a stop at the World Expo in Shanghai on Wednesday, Bruederle will head to Japan.

earlier related report
China's trade surplus shrinks in September as exports slow
Beijing (AFP) Oct 13, 2010 - China's trade surplus shrank in September as exports and imports slowed sharply, official data showed Wednesday, but the decline was unlikely to ease pressure on Beijing for a stronger currency.

The country's trade surplus fell to 16.88 billion dollars in September compared with 20.03 billion dollars in August, and was the lowest surplus in five months.

The figures come as China set the yuan's central parity rate -- the middle of the currency's allowed trading band -- at 6.6693 to the dollar, its strongest since a June pledge for limited currency reform.

But the data is unlikely to calm angry US and European lawmakers, who are demanding that China let the yuan appreciate faster against the dollar.

"I think the pressure is still going to be there," Brian Jackson, a Hong Kong-based senior strategist at Royal Bank of Canada, told AFP.

"I think the fact that their exports are still very strong suggests that there's plenty of scope for them to do more on the currency."

Some critics claim the yuan is undervalued by as much as 40 percent, giving Chinese exporters an unfair advantage by making their shipments artificially cheap.

Beijing vowed in June to let the yuan trade more freely against the dollar. Since then, the currency has advanced around two percent against the greenback.

China's exports rose by 25.1 percent in September year-on-year to 144.99 billion dollars, compared with an increase of 34.4 percent in August, the data showed.

Imports rose 24.1 percent on-year in September to a record-high 128.11 billion dollars, but slower than the 35.2 percent growth recorded in August, the report said.

Beijing-based Citigroup economist Ken Peng told AFP that despite the slowdown in exports and imports growth last month, the data remained very strong and would "not stop the calls for more appreciation" in the currency.

China has repeatedly rejected demands for a sharp rise in the yuan, with Premier Wen Jiabao telling European lawmakers last week that such a move would destroy Chinese businesses and fuel social instability by triggering job losses.

"The world will by no means benefit from a crisis in the Chinese economy," he added, pledging to "gradually allow more flexibility in the yuan exchange rate while maintaining its basic stability".

While China has said it wants to reduce its heavy reliance on exports to drive the economy, the export sector remains a massive employer in the country of 1.3 billion people.

China's top central banker Zhou Xiaochuan, in Washington last week for an annual International Monetary Fund meeting, said the yuan would move gradually towards an "equilibrium" level but rejected any "shock therapy".

The country's foreign exchange regulator said Tuesday that reforming the yuan exchange rate did not equate to currency appreciation and that market players should get used to "two-way fluctuation in the yuan exchange rate".

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News