Business

David Cameron urges China to correct trade imbalance

David Cameron at Peking University
Image caption David Cameron said that China's economic power gave it economic and political "responsibilities"

UK Prime Minister David Cameron has stepped into the row over "currency wars" with a warning that China should act to correct its trade imbalance.

In a speech at Peking University, he said that China's export success was a potential threat to other economies.

China's huge trade surplus is in part attributed to the weakness of the yuan, which helps the country's exporters.

But ahead of the G20 summit, China's President Hu Jintao said countries must "face their own problems".

Latest figures show that China's trade surplus rose to $27bn (£17bn) in October, despite rapid economic growth in the country starting to cool.

Critics blame Beijing for keeping the yuan artificially low, which helps boost exports and has led to China building up massive amounts of foreign reserves.

Mr Cameron, who is leading a trade mission to the country, said he wanted "to make the positive case for the world to see China's rise as an opportunity, not a threat".

'Responsibilities'

He said China can play a leading role in dealing with economic problems as the world emerges from recession.

But China's increasing economic muscle has given it "responsibilities" both economically and politically, said the prime minister.

In an apparent reference to the low valuation of the yuan, Mr Cameron said: "The truth is that some countries with current account surpluses have been saving too much while others like mine with deficits have been saving too little.

"And the result has been a dangerous tidal wave of money going from one side of the globe to another.

"We need a more balanced pattern of global demand and supply, a more balanced pattern of global saving and investment."

Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.

It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.

The issue will be a key topic at the G20 summit in South Korea on Thursday and Friday.

Interference

However, in an interview with China's official Xinhua news agency, President Hu Jintao told countries to "face their own problems" rather than casting blame.

Separately, China's vice foreign minister Cui Tiankai rejected foreign interference in what Beijing regards as an internal matter.

"The recent crisis was certainly not caused by China's currency," he said in an interview.

An he warned that the summit should not descend into a row about currencies. If either side "chooses a confrontational approach, I think everybody will come out as losers", he said.

Meanwhile in London, Mervyn King, the governor of the Bank of England, also called for co-operation, not confrontation, at the summit.

"I hope that at the G20... we will get a co-operative message rather than some of those that we have been getting in the last few days and weeks."

But he said that the G20 must agree to let current account imbalances unwind, rather than impose targets and policy instruments.

This, he said, was in the collective interest.

"Unless we recognise that... then we will face a situation where more and more countries will resort to policy instruments that in the end will be damaging to everyone. It is that serious."

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