CHINA: Pressure on currency from EU Summit.
Updated
European leaders meeting their Chinese counterparts in Beijing have warned that China's weak currency and growing trade surplus are becoming unsustainable. They want faster action from Beijing to appreciate the currency or risk retaliation in the form of higher import tarriffs.
Presenter: Karon Snowdon
Speakers: Richard Gibbs, Global Head of Economics with the Macquarie Group
SNOWDON: The European Commission President, Jose Manuel Barroso gave a speech in Beijing ahead of his meeting with President Hu Jintao.
In it he warned the trade imbalance in China's favour runs the risk of China's growth being seen as a threat by Europeans.
He was one of the many business and political leaders, including Europe's central banker to visit Beijing for the 10th EU China summit .
They are pressuring for change with more access to China's market and a stronger currency.
Yet on the very day of the summit, the yuan or renmimbi bucked a trend and weakened against the major currencies.
Richard Gibbs is the Global Head of Economics with the Macquarie Group.
GIBBS: Yes interestingly we are seeing the currency weaken and that's against a backdrop of rumours comin gout of Hong Kong, or press reports the exchange rate tradin gband which would effectively be sanctioning an appreciation or revaluation of the currency. So we're seeing speculators in effect taking on that reumour and taking a contrary view and suggesting that the currency would stay at its current undervalued level.
SNOWDON: Even if even if we do see a widening of the band, is it going to be enough to satisfy the critics like those in the EU?
GIBBS: I don't think it will be because the yuan has actually risen by 9.7% against the US dollar on top of the 2% odd initial revaluation in 2005. However when we look at what the yuan's actually done against the Euro, its actually fallen, its fallen by about 11% in total over the same period of time so I think a one even two per cent revaluation of the yuan is unlikely to satisfy the critics in the European Union.
SNOWDON: The European Union is China's biggest export market, with bilateral trade worth 300 billion dollars.
For the EU China is its second biggest export market after the United States, .
And like the US, the Europeans are feeling the double edged sword of China's economic impact.
Consumers like the cheap imports, while manufacturers are left reeling.
Some of the deals signed earlier this week might help.
A business delegation travelling with French President Nicolas Sarkozy signed about 30 billion dollars worth of contracts with Chinese partners.
Among them the nuclear company Areva is to build two nuclear reactors, while aircraft maker Airbus confirmed orders for 160 planes and an agreement for the production of components in China.
SARKOZY: We want to accompany your development, we are not simply asking you to buy our products, we are ready like we are already doing with Airbus to build aeroplanes here in your country, so Chinese engineers will learn to build the best aeroplanes of the world.
SNOWDON: Back home European politicians say they face growing pressure to raise tariffs against Chinese imports.
The EU's Trade Commissioner Peter Mandelson advises Beijing that a stronger currency will take the pressure off by stabilising China's booming economy and boosting domestic demand.
The Macquarie Group's Richard Gibbs says any talk of trade protection concerns the wider world.
GIBBS; It is a worrying sign because generally if we find the rhetoric really is ratcheted up trade barriers, trade sanctions, retaliation usually follows pretty quickly. So there is a concern that we could see a rise in trade protectionism, so as that rhetoric is ratcheted up the risk of that trade protectionism and those measures increases.
SNOWDON: Other issues being discussed during the summit include climate change, Burma, Africa and the Middel East peace process. Separate meetings are held twice a year on human rights, a major theme of EU-China relations for many years.
