Friday, 27 November 2009

EU piles on RMB pressure

It is not only the US who want to see the RMB appreciate. Now the EU want in on the act. This pressure will have a limited impact.

EU leaders step up pressure on renminbi [FT]

China will come under renewed pressure this weekend to begin strengthening its currency when three of Europe’s most senior economic policymakers visit the country.

Ten days after Barack Obama, US president, called for an appreciation of the renminbi during a trip to Beijing, a similar case will be made by Jean-Claude Trichet, European Central Bank president, Joaquin Almunia, the European Union’s economic affairs commissioner, and Jean-Claude Juncker, the Luxembourg prime minister who chairs eurozone finance minister meetings.

The three policymakers will be in Nanjing this weekend, ahead of Monday’s EU-China summit to be held in the eastern city. The meetings with their Chinese counterparts come at a time of increasing international attention on the renminbi which has been effectively pegged to the US dollar since the middle of 2008. Concerns that China is getting a competitive advantage by tracking the weakening dollar have been particularly acute in Europe, given the euro’s strength.

Beijing says China needs a stable exchange rate against the dollar to assist its economic recovery, which it says has benefited the rest of the world.

A meeting of the ruling Politburo on Friday gave no indication that China planned to pull back the aggressive stimulus measures it has adopted this year. A summary of the meeting read on the main national news on Friday night, which made no reference to currency policy, said that the government would maintain “active fiscal policy and appropriately relaxed monetary policy”.

There have been a few hints that policy could change, most notably the announcement from the central bank three weeks ago that the exchange rate would take into account “capital flows and major currency movements”, an acknowledgement of both the large speculative inflows of capital that China is receiving and the weakness in the US dollar.

European policymakers have no illusions that China’s exchange rate policy will change overnight but see their visit this weekend as part of a process of gradual persuasion.

Like the US, the European authorities favour an orderly appreciation of the Chinese currency. They fear a global economic adjustment process in which the euro strengthens further, hitting export prospects. However, Europe’s tactics have been lower key than the public pressure Washington has tried to exert on Beijing.



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