Revalue renminbi to rebalance trade, says EU

FE Team | Published: November 17, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Tony Barber, FT Syndication Service
BRUSSELS: China should revalue the renminbi to boost domestic demand, remove obstacles to banking reform and cool an overheating heavy industry sector, Peter Mandelson, the European Union's trade commissioner, said.
In a recent speech in Washington that highlighted the EU's growing concern over China's currency management and commercial practices, Mr Mandelson said that the EU's trade deficit with China was growing by $20m every hour and would "catch up with the US-China trade deficit in the next year or so".
He was speaking ahead of a November 28 EU-China summit in Beijing that will be preceded by a visit from three EU leaders - Jean Claude Trichet, the European Central Bank president, Joaquin Almunia, the EU monetary affairs commissioner, and Joan-Claude Juncker, who chairs the finance ministers' group of the 13-member eurozone.
"We want an end to a managed currency in China that hurts us," Mr Mandelson said.
"Even if revaluation would not, in itself, solve our trade deficits, it would help cool an overheating heavy industry sector which is swollen with overcapacity and artificially cheap capital.
"Boost domestic demand and you reduce the huge levels of precautionary saving that are padding the Chinese banking sector and removing the need for reform."
EU finance ministers last month broke new ground by issuing a statement that put the Chinese currency's exchange rate at the top of their list of concerns, ahead of the dollar and yen. Exchange rates are expected to figure prominently at the EU-China meetings later this month.
Mr Mandelson said western countries wanted China to reciprocate the market access on which its rapid economic growth was built, and to make a dramatic improvement in the protection of intellectual property rights.
"China has been perhaps the single greatest beneficiary of a rules-based open trading system in the last decade. Now China must live by those same rules. She cannot expect special considerations," he said.
"I think this is the only way that we will be able to sustain the political support we need in our own societies to meet the challenges and changes that an open economic relationship with China imposes on US."