MercoPress. South Atlantic News Agency

G7 Finance ministers press China for a stronger Yuan

Finance ministers from the G7 group of leading industrial countries meeting in Washington have called on China to allow its currency to rise in value more quickly. “Beijing must do more to let the Renminbi appreciate”, said G7 ministers.

This would make Chinese goods less competitive and could help curb China's international trade surplus. The G7 said it could also help reduce inflationary pressures in China because it would make imports cheaper. The deputy governor of China's central bank said it was committed to gradual revaluation alongside economic reform. But, added Wu Xiaoling, "moving the exchange rates in the absence of economic restructuring policies will hurt China". The Yuan has in fact moved up 10% since China began to adopt a more flexible policy in 2005 and that was welcomed by the G7. But they think it would be in everybody's interests for it to happen more quickly. "They have always said that the reason they're not moving more quickly is they care about stability," said US Treasury Secretary Henry Paulson. "And we care about stability. I just happen to think there's more risk in moving too slow than in moving more quickly." A similar call was made by minsters from the Eurozone countries last week. China also figures in another area of concern: the rising power of government-backed funds in oil-rich and emerging nations that are buying into Western companies, a trend that has prompted calls for more oversight and transparency. European and other G7 nations are seeking more transparency on the funds' dealings and ways to keep strategic industries out of reach. G7 nations should agree on guidelines for ensuring that authorities know who is behind such funds and should step up dialogue with the countries involved, the officials said. The G7 said that the fundamentals of their own economies remained strong but they did acknowledge that high oil prices and problems in the United States housing market are likely to cause global growth to be somewhat slower. Mr Paulson said that the housing market and the mortgage crisis is the most significant risk to the US economy. "We talked about the housing market, mortgage markets, sub-prime... It has been subtracting from our growth now for a number of quarters. And, despite that, the US economy is growing - very little evidence that it's spilled over into other areas. However earlier in the week the International Monetary Fund, IMF stated that the global economy may face a marked slowdown next year as a result of the turmoil in financial markets. The IMF said the global credit squeeze would test the ability of the economy to continue expanding at recent rates. While future economic stability could not be taken for granted, there was plenty of evidence that the global economy remained durable, it added. A sharp slowdown in the US economy is expected to constrain growth next year. IMF had been forecasting global growth of 5.2% in 2008 but media reports suggest this could be downgraded to below 5%. Remarks from the IMF World Economic Outlook briefing show policymakers' concerns about the long-term economic impact of the US housing slump and the tightening of credit markets. "With financial markets around the world now being affected by the fallout from the US sub-prime mortgage difficulties, a broader economic slowdown cannot be ruled out," it said. The IMF noted that although interest rates had returned to more "neutral" levels in leading industrialized countries, a lack of liquidity in banking markets "may test the strength of the current expansion".