China shrugs off EU appeal for stronger yuan

Summit talks between Chinese and European leaders ended on an off note Monday as Premier Wen Jiabao rejected calls for a stronger Chinese currency and accused critics of seeking to undermine his country's rise.

The one-day summit with the 27-member European Union was the most substantive dialogue between China and its largest trading partner, a market of more than 500 million people, in more than two years.

It ended with the signing of five mostly technical agreements on energy, environmental co-operation, trade and investment but no fresh initiatives on pressing global issues such as climate change.

China and the EU should rise above their differences, Wen said, before launching into a staunch defence of currency policies that European leaders say are pressuring the region's exporters, possibly endangering their economic recovery.

Keeping the yuan, also known as the renminbi, stable is what's best for China's economy and the world recovery, Wen insisted.

"Some countries demand change while practicing trade protectionism against developing countries," Wen told reporters, suggesting that such views were aimed at stifling China's development.

"This is unfair," he said. "We will maintain the stability of the renminbi at a reasonable and balanced level."

Currency not only issue of contention

Like most summits in China, the event in Nanjing, west of Shanghai, was orchestrated to prevent major surprises, and no questions were allowed. After Wen's firm response, European leaders who had promised to brief reporters cancelled those plans.

But Wen, like his European counterparts, balanced his criticisms with an emphasis on the need to keep on talking, despite their differences.

"We forever will be friends, rather than rivals," Wen said. "We welcome the EU's efforts to increase co-operation."

The Europeans say that China is distorting trade and limiting its own monetary policy options by keeping the yuan tied to the weakening U.S. dollar in a bid to protect its manufacturers.

The weaker yuan also undermines Chinese purchasing power, hindering efforts to boost imports and better balance trade, financial chiefs of the 16-nation zone using the euro said in meetings Sunday.

China has pledged to gradually allow greater flexibility for the yuan but chafes at open criticism of its policies.

Currency issues are just one area of contention on the economic front despite joint calls by both sidesto fight protectionism and push ahead with global financial reforms and strategies to unwind massive recession-fighting stimulus programs.

The two sides also remain at odds over lightning rod issues like human rights. Yet relations have warmed after a relatively chilly spell last year when French President Nicolas Sarkozy's threatened to boycott the 2008 Olympic Games over China's handling of protests in Tibet.

"The situation in China still gives cause for concern," said Swedish Prime Minister Fredrik Reinfeldt, whose country holds the rotating EU presidency.

Wen urged the Europeans to "respect the path chosen by others."

"China and the EU should respect each other's social systems and cultures," he said.

'We mean what we say'

The summit, just two weeks after U.S. President Barack Obama's state visit to China, underscored the difficulties of reconciling conflicting views on how to ensure growth is sustainable, balanced and fair.

The two sides reaffirmed their belief that stimulus policies should be kept in place for the time being to ensure the rebound has truly taken hold.

But they appeared to differ over strategies for countering imbalances in trade, spending and investment that helped contribute to the global financial crisis.

With China's economy expanding at near pre-crisis levels and certain to exceedeight per cent growth this year, concerns are rising that a flurry of investment fueled by Beijing'sfour trillion yuan ($586 billion US) economic stimulus program is creating massive overcapacity in many industries.

"Major imbalances because of trade or because of currencies can create problems in the future if they are not fully addressed," European Commission President Jose Manuel Barroso said Sunday.

While it has sought to counter that trend, Beijing prefers to view itself as a responsible, stabilizing force in the world economy and environment.

Wen likewise defended China's pledges to control emissions of heat-trapping greenhouse gases as "consistent with reality."

Barroso and other EU leaders welcomed fresh Chinese commitments on countering climate change but urged Beijing and other big polluters to lead the way in helping along negotiations ahead of next week's climate talks in Copenhagen.

"We cannot negotiate with the reality of climate change," Barroso said. "We are asking all sides to do everything they can to contribute to a comprehensive and global agreement."

As a developing nation, China is extremely reluctant to accept curbs that might hinder its growth.

"We mean what we say and will honor our commitments," Wen said. "China is ready to move forward and work for a fair, reasonable and achievable outcome."