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Last Updated: Tuesday, 27 November 2007, 11:13 GMT
EU to pressure China on currency
A bank worker counts Chinese yuan
Europe is calling for the yuan to be strengthened
The European Union (EU) is expected to pressure China to allow its currency to strengthen more quickly at a bilateral summit in China this week.

The weak yuan has buoyed exports to Europe, which has seen its trade deficit with China soar.

"We will have a large tour d'horizon on all matters, including of course the currency question," European Central Bank boss Jean-Claude Trichet said.

But China wants to loosen control of its currency at its own pace.

On Tuesday, Mr Trichet will meet with central bank governor Zhou Xiaochuan.

And on Wednesday, the Chinese premier Wen Jiabao will meet Mr Trichet, Luxembourg prime minister Jean-Claude Juncker and the EU's monetary affairs commissioner Joaquin Almunia.

Holding its ground

In talks earlier this week with French President Nicolas Sarkozy, Premier Wen Jiabao reiterated the Chinese view of a slow and carefully-handled currency reform.

"China will unswervingly follow the principles of initiative, controllability and gradualism to promote foreign exchange reform in an orderly manner and to increase continuously the flexibility of the yuan's exchange rate," foreign ministry spokesman Liu Jianchao quoted the premier as saying on Xinhua news agency.

But the Chinese view will fall on stony ground.

Earlier this month, Luxembourg's Mr Juncker said the yuan was undervalued by 20% to 25%, a level that gave China an unfair trade advantage.

Advantage China?

The yuan has risen 9.8% against the dollar since a revaluation in July 2005.

But critics of China's monetary policy say, that when measured against currencies of its main trading partners, its value has barely changed.

The weak Chinese currency has contributed to the boom in Chinese exports to Europe.

The 13 countries in the eurozone area saw their trade deficit with China rise by 25% in the first eight months of the year to 70bn euros (50.23bn; $103.9bn)

A stronger yuan may help China as much as it helps Europe, argued EU trade commissioner Peter Mandelson.

"Even if revaluation would not, in itself, solve our trade deficit, it would cool an overheating heavy industry sector that is swollen with overcapacity and artificially cheap capital," he wrote in Tuesday's China Daily.

Full agenda

China's record on food and product safety as well as its weak protection of intellectual property rights are also likely to be discussed.

Millions of Chinese-made toys were recalled earlier this year amid concerns about high levels of lead and loose magnets.

Last week, a European Commission report found that China had made "considerable progress" in improving the safety of the toys it exports.

The booming Chinese economy has presented opportunities to European businesses as well.

French industrialists visiting China with President Nicolas Sarkozy this week finalised trade deals worth almost 20bn euros ($30bn; 14.5bn).

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