China to Let Market Forces Weigh on Value of Yuan

BEIJING, Nov. 28 - China will allow market forces to exert more influence over the value of the yuan as the country moves toward a fully convertible currency, Prime Minister Wen Jiabao said on Wednesday.

His remarks came after European financial leaders visiting Beijing stepped up demands for a stronger Chinese currency, also known as the renminbi, to curb Europe's trade deficit with the Asia country.

"China will continue to perfect the renminbi exchange rate regime in a gradual, proactive and manageable manner, give a further role to the market in determining the exchange rate, and will bring flexibility to the renminbi with a view to enabling capital account convertibility," Mr. Wen was quoted as saying at a European Union-China business forum.

While not a major departure from China's long-held positions, the mention of "the market" is one of the strongest acknowledgments so far that China sees a need to move away from a rigid currency structure.

Europe's trade deficit with China is forecast to increase 30 percent this year to 170 billion euros, or about 2 billion, and tensions have sharpened as the yuan has fallen significantly against the euro.

Europe, and most of China's other major trading partners, have complained that an undervalued yuan gives an unfair advantage to Chinese exports.

China allows the value of the yuan to move in a tightly controlled range against the dollar and mostly restricts the conversion of major sums to foreign currencies to trade-related payments. Analyst say that Beijing is likely to allow a continued, gradual appreciation of the yuan, which has allowed it to strengthen by more than 12 percent since July 2005.

Earlier on Wednesday, before the opening of an annual Europe-China economic summit, Jean-Claude Trichet, president of the European Central Bank, said that in addition to helping balance international trade, a stronger yuan would promote stable economic growth in China.

Mr. Trichet was part of a delegation of monetary officials that held separate talks in Beijing on currency and trade with their Chinese counterparts. After the talks, he said Europe recognized that China was determined to see domestic consumption play a bigger role in economic growth. Faster appreciation of the yuan, particularly against the euro, would help Beijing achieve this goal. "It would be good for both the Chinese interests and sustainable global prosperity," he said.

He added that the European Central Bank and the People's Bank of China, the country's central bank, would set up a working group to study currency and trade.

Also on Wednesday, the European trade commissioner, Peter Mandelson, renewed calls for China to reduce barriers to imports of European goods and services.

"There is now a lack of trade balance between China and the E.U.," he said in a speech in Beijing. "China has barrier-free access to Europe's markets. We would like to move in a progressive way to a similar status in China's markets."