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EU „worried” by Chinese trade deficit, wants Yuan flexibility

The EU, „worried” about its ballooning trade deficit with China, is pressing the Asian government to let its currency rise and open up to foreign investors, said Trade Commissioner Peter Mandelson.

Mandelson yesterday outlined a strategy to open China's market to European Union exporters and crack down on fake products, saying the Chinese government imposes price controls on business and fails to enforce property rights. He added his voice to US officials who are also demanding greater yuan flexibility, saying the current level of appreciation „is too gradual for us.” China's trade surplus with the EU swelled to a record €47.6 billion ($59.7 billion) in the first seven months of the year, up 24% from a year earlier. The Asian nation, the world's fourth-biggest economy, is now the EU's No. 2 trade partner after the US and the bloc's biggest source of industrial goods such as microwave ovens and power cables. „We want them to show a little bit more responsibility” in global trade, Mandelson said in an interview from Strasbourg, France. „I'm worried” about the EU's trade deficit „in the sense that it could and should be repaired by China showing as much openness to our goods and services as we show to China.” Mandelson will travel to Beijing next month to start talks with officials including Commerce Minister Bo Xilai to overhaul the 21-year-old trade and investment agreement between the EU and China. That deal „may as well date from the Ming Dynasty; it's about equally long ago in trade terms,” he said.

China's government must now implement the international commitments made when it joined the World Trade Organization in 2001, he said. Otherwise, „where they distort trade, where they engage in anti-competitive behavior, where there's a clear case for us,” the EU will challenge China through the WTO, he said. Since scrapping the yuan's fixed exchange rate to the dollar last July, China has permitted the currency to move by at most 0.3% a day around a daily fixing rate. China also started trade in forwards contracts and introduced foreign-exchange swaps to allow companies to reduce currency risk. China will gradually allow the market to play a greater role in setting exchange rates and introduce futures to help banks and companies hedge against the risk of currency fluctuations, central bank Vice Governor Wu Xiaoling said at a forum in Beijing today. US Senators Lindsey Graham and Charles Schumer accuse China of deliberately keeping its currency undervalued to shore up sales, adding to China's trade surplus and boosting the record US trade deficit.

Both the US and the EU have threatened to challenge China's enforcement of copyright and trademark piracy through the WTO's dispute system. Violations of copyright and other rules designed to protect inventions and brands from illegal imitation account for as much as €360 billion in unlawful trade a year and act like „a ball and chain on EU competitiveness,” Mandelson said. About two-thirds of fake goods imported into the 25-nation bloc originate in China, the EU says. While European businesses have benefited from China's growth, which slowed for the first time in a year in the third quarter to 10.4%, they face „serious barriers” in gaining access to the country's market, the European Commission said. That may feed protectionist sentiments because „there is a growing risk that the EU-China trading relationship will not be seen as genuinely reciprocal,” the Brussels-based commission said in a statement. Together with Canada, the EU and the US have already filed a WTO complaint over China's tariffs on car parts, which they say discriminate against carmakers such as Ford Motor Co., Volkswagen AG and Renault SA. (Bloomberg)