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Last Updated: Thursday, 4 September, 2003, 08:38 GMT 09:38 UK
China's yuan tops summit agenda

By Rodney Smith
BBC World Service business reporter

The weakness of China's currency will be at the top of the agenda for finance ministers from the 21 member states of Apec, the Asia Pacific Economic Co-operation group.

The 21 ministers meet this week in Phuket, Thailand, to discuss the full-scale Apec meeting in October.

The way China's yuan or renminbi remains pegged at 8.30 to the dollar - as it has done for a decade despite the country's rapid growth - is a key concern.

But the seeming reluctance of other East Asian countries as well to allow their currencies to float freely will also feature in the discussions.

Softening the line

Leading the charge will be US Treasury Secretary John Snow, fresh from talks in Beijing.

Initially, the Chinese had said they would not bow to pressure from other countries to change a currency regime that had brought stability to China.

The Yuan is costing American jobs, Washington says
But they appeared to modify their stance after meeting Mr Snow, reiterating that they would at some stage allow the rate for the renminbi against the dollar to be set by the market - although they refuse to set a date.

The US stance is backed by the Japanese.

On his arrival in Phuket, Finance Minister Masajuro Shiokawa said he hoped China would adopt a financial system to match its expanding economy.

The International Monetary Fund (IMF), too, believes it is time for China to allow its currency to rise against the dollar.

Fresh start?

The IMF has been unpopular in East Asia since it was criticised for its harsh economic prescriptions in the wake of the Asian economic crisis in 1997.

IMF chief Horst Kohler will be attending the Apec meeting with what looks suspiciously like an olive branch.

He has been hinting that economic co-operation could be boosted by the creation of an Asian Monetary Fund.

This idea was floated by Japan after the Asian crisis, but was condemned by major western countries, who feared it might jeopardise the IMF.

Now, such a fund might act as an incentive to a China aware of its growing economic power and responsibility in the region.

The low renminbi rate carries penalties as well as benefits for the Chinese.

For example, it could boost inflation.

There are already signs that property prices could be at risk of running out of control in affluent centres like Shanghai.

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