China to hold deep dialogue on yuan peg at G-7

Jan 26 | Updated: Jan 27 2005, 05:30am hrs
Chinese Finance Minister Jin Renqing will hold a deep dialogue on the yuans peg versus the dollar when he attends a Group of Seven meeting next month in London, a ministry official said.

Jin and central bank governor Zhou Xiaochuan will attend the meeting of finance ministers from the G-7 industrialized nations, Zhu Guangyao, director general of the ministrys international department, told a forum organized by the Economist in Beijing.

Minister Jin will hold a deep dialogue with Gordon Brown, the U.K.s Chancellor of the Exchequer, who is hosting the meeting, Zhu said. The issues will include the yuan exchange rate. Discussions in London will be more in depth than previous meetings, he said, speaking through an interpreter.China, the worlds third largest trading nation, is under pressure from the U.S. and increasingly Europe to change its decade-long peg to the dollar to help narrow the record U.S. trade deficit and ease pressure on the euro, which rose 7 percent against the dollar last year and has risen 4.3 percent so far this year.The U.S. says the peg has given Chinese exporters an unfair advantage and has contributed to its record trade deficit with China, which amounted to $148 billion dollars in the first 11 months of the year.European Central Bank Chief Economist Otmar Issing on Jan. 11 urged China to help absorb a drop in the dollar. In the foreign exchange question, weve seen an adjustment at the European level happen and already gone too far, he said in Zurich, Switzerland. The key to this problem lies with Asia, and especially in the hands of China.

Asian countries dont want to let their currencies rise against the dollar because they fear their exporters will lose competitiveness with China. A stronger yuan may increase Chinas buying power in Asia and make Chinese exports less competitive, allowing other regional central banks to let their currencies gain. This issue will be discussed, but it should not be viewed as pressure, or arm-twisting, Zhu said. Of course we hear the comments from our partners. But China needs to take its own countrys interests into account when considering the level of the exchange rate.

The IMF has been advising the China to introduce more flexibility into its exchange rate system for several years, Steven Barnett, the funds resident representative in China, said in Beijing today at the Economist conference.