China holds firm as G7 spars over weak yen and yuan
Friday, February 09, 2007 2:12:51 PM (GMT-06:00)
Provided by: Reuters News
For all stories from the meetings in Essen double click [G7/G8]
(Adds China's Jin, German spokesman rectifying yen comment)
By Paul Carrel and Krista Hughes
ESSEN, Germany, Feb 9 (Reuters) - China fended off renewed U.S. pressure over yuan weakness and Japan took the heat from Europe over the yen's slide as finance ministers from the G7 club of wealthy industrial countries met on Friday.
China, invited for a first time to the strategic part of Group of Seven deliberations during a two-day meeting chaired by Germany, said it was doing what it could to make adjustments and was doing so at its own pace.
"According to our plans and our economic ability, we are increasing our yuan exchange rate flexibility, and I think this is now suitable," China central bank chief Zhou Xiaochuan said.
With the yen continuing to trade near record lows against the euro, Japan came under pressure from euro zone countries worried that their exporters stand to lose out disproportionately in world markets.
Germany briefly sowed confusion when Steinbrueck appeared to play down the extent of the yen problem.
Asked if there was evidence that the weak yen was damaging Europe, he told Reuters Television: "No, I don't think so." A Finance Ministry spokesman later said there had been a misunderstanding on the issue. "This is not the minister's position," the spokesman said.
The other European countries in the G7 worried by the yen are France and Italy.
But U.S. Treasury Secretary Henry Paulson gave the Europeans short shrift, reiterating earlier comments that the yen was a currency traded freely in the financial markets, unlike the yuan, which he wanted to see rising faster.
"The yen is market-determined. It's a very broad, liquid market, so it trades in a marketplace based on underlying economic fundaments, period," Paulson told reporters here.
The yen has lost four times as much ground versus the euro than against the dollar in the past year.
Back in Washington, Paulson came under fire for his stand on the yen from a group of U.S. Democrats, two of them from Detroit, heartland of U.S. car manufacturing.
"We urge you to press the Japanese government to reverse their weak yen policy through concrete action," the politicians said in a letter to Paulson, which was released to the media.
The G7 talks, which began with a champagne reception and dinner on Friday and run into Saturday, involve ministers and central bankers from the United States, Japan, Germany, France, Britain, Italy and Canada.
Defending his corner, Japanese Finance Minister Koji Omi repeated that the yen's value should reflect the fundamentals of the economy, something the Europeans argue is not the case and something U.S. envoy Paulson believes is in fact the case.
Japan's ultra-low interest rates of 0.25 percent have encouraged investors to sell the yen in favour of investments in higher yielding currencies, pushing the Japanese currency to a 21-year low on a real, trade-weighted basis.
The government is worried that interest rates may be raised too fast and before the coffin on nearly a decade of deflation is finally nailed shut.
CHINESE CHECK OUT
Germany invited several emerging market countries to Essen and reserved special treatment for China, the fourth-largest economy in the world now but not a member of the G7 -- a club founded in the 1970s when Communist Party-ruled China was still closed to the outside.
Chinese Finance Minister Jin Renqing discussed currencies with Steinbrueck and the two posed for photographs ahead of the wider gatherings.
Nothing much leaked from the face-to-face meeting, except news that Jin disliked the hotel chosen for VIPs and switched to another one with top-class food, according to a German official.
"They simply said they don't like it," the official, who was speaking on condition of anonymity, said of the first hotel.
Other Essen invitees were Brazil, India, Mexico, Russia and South Africa. Steinbrueck said systematic participation and even membership for those big emerging market players made sense.
A small group of debt campaigners gathered near the meeting place to keep up the pressure on rich countries to deliver on commitments to boost aid to Africa and allot 0.7 percent of gross domestic product to development aid.
For their part the ministers were also due to discuss how they could promote development of capital markets in Africa.
The G7 meeting was also to set to talk about hedge fund transparency and systemic risks such funds may pose.
Loosely policed hedge funds have become a powerful market force, originally catering to the ultra-rich but concern is mounting about increasing links to mainstream banks, mainstays of the global financial system. Their assets have doubled in the United States to more than $1.3 trillion in the last five years.
Steinbrueck said he aimed to draw up a concrete concept for dealing with hedge funds by the end of this year when Germany hands on the stewardship of the G7.
"We are not talking about regulation," Steinbrueck said in the interview with Reuters Television. "We're at the very beginning of that discussion."
|
