EU presses China to act over cheap yuan

Yuan notes - file pic
Image caption China's export boom is underpinned by a very competitive exchange rate

Eurozone policymakers have urged China to allow its currency, the yuan, to rise in value significantly.

The plea came during talks in Brussels with Chinese Prime Minister Wen Jiabao on Tuesday.

A top eurozone minister, Jean-Claude Juncker, called for a "significant and broad-based appreciation" of the yuan.

The US authorities have accused China of keeping the yuan artificially low against other world currencies, making Chinese goods cheaper globally.

Mr Juncker, chairman of the 16-nation eurozone finance ministers, told a news conference: "China's real effective exchange rate remains undervalued."

'Balanced growth'

In June China signalled that it would allow more flexibility in the yuan exchange rate.

"We welcomed the Chinese decision of 19 June this year to increase the flexibility of the Chinese currency exchange rate, although the potential of these decisions has not been sufficiently exploited," Mr Juncker told reporters.

He said Mr Wen indicated that China was sticking to that statement.

"Given China's important role, we do think that an orderly, significant and broad-based appreciation of the renminbi [yuan] would promote a more balanced growth to the benefit both of China and the global economy," Mr Juncker said.

On Sunday Mr Wen said China would continue to support both the euro and European government bonds.

"I have made clear that China supports a stable euro," he said.

He also promised not to cut China's investment in European bonds, despite the recent crisis which has weakened the value of many such bonds.

China's economic growth slowed to an annual rate of 10.3% in the second quarter of the year, from 11.9% in the first quarter.

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