China Bashers Pass Buck on What’s Ailing U.S.

By Kevin Hassett

'Blaming China is fun for the political and intellectual elites because it allows them to ignore their own failures'

 

Oct. 4 (Bloomberg) -- China bashing is all the rage in Washington, as politicians of both parties blame the world’s fastest-growing major economy for high jobless rates in the U.S.

Such a popular target is China that the U.S. House of Representatives, all but paralyzed by the prospect of next month’s election, easily passed a bill last week that might impose tariffs on China in retaliation for currency manipulation.

Blaming China is fun for the political and intellectual elites because it allows them to ignore their own failures. Gridlocked politicians on both sides of the aisle are equally attracted to the claim. The problem with U.S. growth isn’t that we have an out-of-control government and the second-highest corporate tax rates on earth; it’s all China’s fault.

As political scapegoating goes, this is easy -- too easy. In truth, the impact on the U.S. economy of a change in Chinese currency policy could well be so small that it would be almost impossible to detect.

First consider the arguments of those who say the U.S. would see significant benefits from a more freely floating yuan.

C. Fred Bergsten of the Peterson Institute for International Economics testified in the House last month that “elimination of the Chinese misalignment would create about half a million U.S. jobs, mainly in manufacturing and with above-average wages, over the next couple of years.”

Toward Equilibrium

How to accomplish that? Bergsten estimates that an appreciation of about 25 percent against the dollar would be necessary to restore an equilibrium exchange rate. When he testified on Sept. 15, the yuan had risen at an annualized rate of only about 4 percent since June, when the Chinese government pledged more flexibility. The growth rate does seem to have increased since Sept. 15.

Bergsten recommends that the U.S. designate China as a “currency manipulator” and encourage other nations to apply pressure on China to change its policy. He also says the U.S. should engage in “countervailing currency intervention,” which means purchasing yuan to offset China’s dollar purchases.

There is a good deal of academic disagreement over the Bergsten analysis. Helmut Reisen, head of research at the OECD Development Center, part of the Organization for Economic Cooperation and Development, wrote in April that “it is far from assured” that an appreciation of the yuan would influence current account balances.

He added, “There is a clear political focus on the bilateral U.S.-Chinese trade balance, but bilateral imbalances are of no economic interest -- there are more than two countries in the world.”

Ripple Effects

Philip Levy, my colleague at the American Enterprise Institute, shares this view. The ripple effects throughout the trading world of a more flexible yuan could be enormous, diluting the specific impact on any one country, even if that country is the U.S.

If we buy fewer imports from China, we might just buy more from some other country. A sign that this effect might be important, Levy argues, is that even while Chinese imports into the U.S. have been surging, total Asian imports have been roughly constant. This suggests that at least part of the impact of a change in Chinese currency policy would be a tweak in U.S. trade with Malaysia or Japan.

Economist Ray Fair of Yale University attempted to account for ripple effects in a paper that analyzed the macroeconomic impact of Chinese revaluation.

“The estimated effects on U.S. output and employment are modest,” he wrote. “Positive effects on U.S. output from a decrease in imports from China are offset by negative effects on U.S. output from increased inflation and from a decrease in U.S. exports to China because of a Chinese contraction.”

History as Guide

History also is a guide. If changes in the exchange rate are truly a big deal, then the U.S. trade deficit with China should have decreased during the Chinese currency appreciation from 2005 to 2008. Instead, it grew.

Then there’s the question of scale.

Assume that starting in August 2008, when China’s last revaluation ended, U.S. imports from China started tracking those of Japan, another big Asian trading partner of the U.S. that does let its currency float. Under that scenario, imports from China this year would have been about $27 billion lower. In a $14 trillion economy, that is hardly enough to have much of an impact on jobs, especially if imports from other countries increase.

Economic policies with uncertain benefits can be defensible if they carry no cost. Bashing China has real costs: It might cause a trade war reminiscent of the one that put the world economy into a death spiral in the 1930s. And it definitely distracts attention from the need for government policies that directly help the U.S. economy and those looking for jobs.

So isn’t it time we left China alone?

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain in the 2008 presidential election. The opinions expressed are his own.)

--Editors: Laurence Arnold, James Greiff
Click on “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: Kevin Hassett at khassett@bloomberg.net
To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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Economics is a religion, not a science

THINK ASIAN
By ANDREW SHENG

‘Within the cathedral of mainstream economics, there are many chapels devoted to specialised problems’

IS economics a religion? Paul Krugman argued recently in his Aug 21, New York Times column that the policy elite of central bankers, finance ministers and politicians are “acting like priests of an ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.”

By gods, he means the “bond vigilantes,” who advocate spending cuts to reduce the fiscal deficit to enable the bond market to become stronger, resulting in greater confidence in the economy.

The biggest advocate of deficit reduction during the Clinton Administration was former US Treasury secretary Robert Rubin.

As he put it in his memoirs, In an Uncertain Age ( 2003): “In important ways, the deficit had become a symbol of the government’s inability to manage its own affairs – and of our society’s inability to cope with economic challenges more generally, such as our global competitiveness, then much in question.

“The view that fiscal discipline was being restored contributed to lower interest rates and increased confidence, and that led to more spending and investment, which in turn led to job creation, lower unemployment rates, and increased productivity.”

Rubin is the mentor of former economic adviser to US President Barack Obama, Larry Summers, and the current US Treasury Secretary Tim Geithner, both of whom served under Rubin in the US Treasury.

Have they adopted fiscal reduction again as the way to restore confidence, despite Krugman’s view that there is a need for further government spending to ‘get back to the job of rebuilding the economy’?

Krugman is advocating Keynesian intervention in the economy, while the bond advocates are going back to the monetarist’s “let the market work”, by cutting back over-blown government spending back to sustainable levels.

Nobel Laureate Joseph Stiglitz, who broke ranks with the Washington Consensus during the Asian crisis on the irresponsibility of tightening interest rates and cutting fiscal deficits in the midst of a crisis, has just written a new book, Freefall: America, free markets, and the sinking of the world economy.

He has written the most powerful book on the current crisis – not a blow-by-blow account of what happened and whodunit – but a damnation of the crisis in economics and the crisis in morals.

“Economics had moved – more than economists would like to think – from being a scientific discipline into become free market capitalism’s biggest cheerleader.”

The mainstream economists had become so smug in their beliefs that the market was almost efficient that “it was a theological position, and it soon became clear that no piece of evidence or theoretical research would budge them away from it.”

Stiglitz does not hesitate to see the economics profession as a religion.

He aptly describes it as: “Within the cathedral of mainstream economics, there are many chapels devoted to specialised problems. Each has its own priests and even its own catechism.”

He is right. Despite the overwhelming evidence against their utility, the mainstream economists have convinced policymakers that there is little wrong with their models or efficient market Capital Asset Pricing Models.

Let’s get back to the business of making money. In a passionate defence of the under-privileged, Stiglitz argued that there is an underlying moral deficit – “far harder to forgive is the moral depravity – the financial sector’s exploitation of poor and even middle-class Americans.”

He laments the fact that “economics, unintentionally, provided sustenance to this lack of moral responsibility.”

What Stiglitz has demonstrated of the economic theologians is that if they believe that they are right, it must be their detractors who are wrong. So their energy is not spent on what is wrong with their beliefs or assumptions, but why those who try to demonstrate that the theory does not fit with reality are infidels.

Should governments cut deficits?

But let us come back to the big debate: Should governments cut deficits or increase them to get jobs going?

My personal view is that if the United States suffers from fundamentally excessive consumption financed by excessive leverage, then simply increasing public debt to substitute for Wall Street losses does not make sense.

De-leveraging has to happen some time, either in the private or public sector and de-leveraging means cutback in consumption.

The dilemma is whether government spending is for creating temporary jobs or for getting long-term growth going that would create new jobs.

Advanced country public debt is so high because the vested interests, from bankers to healthcare, basically would not allow the government to cut spending and instead push for tax decreases. This fiscal model in the long run is not viable.

The Keynesian argument that if the private sector lacks confidence to spend, the government should spend is not wrong. But Keynes did not spell out where the government should spend. Nor did he envisage that lobbyists can influence government spending to be wasteful. Hence, every prophet can be used by his or her successors to prove their own points of view. This is religion, not science.

One of my dreams is to write a film script about how Martians came to visit Earth in the year 2200, when the world is destroyed by a nuclear war.

As Martian archeologists explore the ruins, they notice that the tallest and the most important edifices left standing are the most magnificent. Deep in their basements, they find vaults made of tungsten steel that seem to protect the most sacred items.

In almost every city they find these buildings. When they manage to open the vaults, they find ashes of paper that could have been records of something important.

They think these are religious documents. Then, they discover some small coins, objects for which the Martians have no use. In each coin, they finally decipher the words: In God we Trust.

The Martians conclude that in the last days of Earth, there flourished an important religion that worshipped a god called Money, and these temples were called banks. They did not find traces of the priests, who were called economists.

·Tan Sri Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysia’s National Economic Advisory Council. He is the author of the book, From Asian to Global Financial Crisis.

China Launches New Lunar Probe Chang'e 2 to Scout the Moon's 'Bay of Rainbows'

China successfully launches Chang´e 2 Play Video Chief Designer: Getting closer to the moonPlay Video China Launches Second Robotic Moon Probe By SPACE.com Staff posted: 01 October 2010 09:28 am ET

An unmanned moon probe blasted off from China Friday (Oct. 1) to begin the country's next phase of lunar exploration and set the stage for even more ambitious spaceflights to come.

The Chinese moon probe, called Chang'e 2, launched at 6:59:57 a.m. EDT (1059:57 GMT) from the Xichang Space Center in southwestern China's Sichuan province, according to state media reports. It should take about five days for the spacecraft to enter orbit around the moon.

The Chang'e 2 spacecraft soared into space atop one of China's Long March 3C rockets. It launched on Oct. 1, National Day in China – a holiday that commemorates the 61st anniversary of Communist rule in the country. 

Chang'e 2 is the second step in China's three-phase Chang'e moon exploration program, which is named after China's mythical moon goddess. Chang'e 2 will test out technology and collect data on possible landing sites for the Chang'e 3 spacecraft, which is scheduled to land on the moon in 2013, China's state-run Xinhua News Agency has reported.

According to media reports, the mission has a cost of about $134 million.

Chang'e 2  will eventually swoop down to an orbit just 9 miles (15 km) above the lunar surface to take high-resolution pictures of landing areas for the Chang'e 3 mission, Xinhua has reported.

After snapping the photos, Chang'e 2 will retreat to an altitude of about 62 miles (100 km) to conduct a study of the lunar surface and dirt. 

The Chang'e 1 probe launched in October 2007 and conducted a 16-month moon observation mission, after which it crash-landed on the lunar surface by design, in March 2009. 

The Chang'e missions are just one prong of China's burgeoning space program, which has seen three successful manned spaceflights, including the nation's first spacewalk on the most recent mission, the Shenzhou 7 flight of 2008. 

China's New Lunar Probe to Scout the Moon's 'Bay of Rainbows' By SPACE.com Staff posted: 01 October 2010 03:45 pm ET

When the unmanned moon probe launched by China today (Oct. 1) arrives at its destination next week, it will target a specific zone on the lunar surface to scout out future landing sites, the country's state-run media reports. 

The robotic Chang'e 2 spacecraft will take a close look at the moon's Bay of Rainbows, or Sinus Iridium, which has been proposed as a potential landing site for China's next moon-bound mission, the Xinhua News Agency reported today.
Chang'e 2 will send back high-resolution photos of the region to help mission planners pick the best landing targets for Chang'e 3 – the probe that is expected to make China's first unmanned moon landing in 2013. 

"The geological structure in this area is diverse, so a probe there would have greater scientific value," Wu Weiren, the chief designer of China's lunar exploration program, told Xinhua. 

The Bay of Rainbows is approximately 147 miles (236 kilometers) wide. Its coordinate location is around 44 degrees north latitude and 31 degrees west longitude. 

Four or five areas have been identified as possible landing grounds for the Chang'e 3 spacecraft, Wu said, but the Bay of Rainbows is the current frontrunner, Xinhua reported. 

"Other places on the moon have already been landed on, so we want to choose one that has not been explored before," he said. "Previously, most lunar programs landed around the equator of the moon, an area easier for monitoring and control maneuvers, but Chang'e 3 will take on greater challenges." 

Chang'e 2 launched at 6:59:57 a.m. EDT (1059:57 GMT) from the Xichang Space Center in southwestern China's Sichuan province, according to state media reports. 

It should take about five days for the spacecraft to enter orbit around the moon. 

After snapping the photos, Chang'e 2 will retreat to an altitude of about 62 miles (100 km) to conduct a study of the lunar surface and dirt. 

The Chang'e 2 mission follows on the success of China's first lunar probe, Chang'e 1, which launched in October 2007 and ended its flight in March 2009. Chang'e 1 crashed into the moon after completing its mission. 

China is also the third country after Russia and the United States to launch manned spaceflights. The country has launched three manned space missions using its Shenzhou spacecraft, most recently the Shenzhou 7 flight of 2008. That mission included China's first three-person spaceflight and China's first spacewalk.

• 10 Coolest New Moon Discoveries
• Making History: China's First Human Spaceflight
• China's Next Moon Probe to Be Better, Faster Than First 
• Moon Exploration Is Not Dead, NASA Official Says

 

A Chinese Long March 3C rocket stands poised to launch China's second moon mission, the Chang'e 2 lunar orbiter, on Oct. 1, 2010. Credit: CALT

A Chinese Long March 3C rocket launches the unmanned Chang'e 2 lunar probe toward the moon on Oct. 1, 2010 from the Xichang Satellite Launch Center. Credit: CALT

An unmanned Chinese Long March 3C rocket blasts off with the unmanned Chang'e 2 lunar probe toward the moon on Oct. 1, 2010 from the Xichang Satellite Launch Center. The mission is China's second lunar exploration flight ever. Credit: CALT

An artist's illustration of a lunar sample return mission, the third phase of China's planned decade-long Moon exploration plan, slated for 2017. Credit: CNSA. Click to enlarge.

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China's Second Moon Probe to Launch This Weekend

China's Second Moon Probe to Launch This Weekend
By Mike Wall
SPACE.com Senior Writerposted: 30 September 2010


China plans to launch its second lunar probe this weekend, possibly as early as Friday (Oct. 1), according to the nation's official Xinhua news agency.

On Thursday, workers will begin fueling the Long March rocket that will blast the unmanned Chang'e-2 probe into space from Xichang Satellite Launch Center in Sichuan province, Xinhua reported. 

Launch will occur "at an appropriate time" between Friday — China's National Day, when the country marks 61 years of Communist rule — and Sunday (Oct. 3), according to Xinhua.

Chang'e-2 is the second step in China's three-phase Chang'e moon exploration program, which is named after China's mythical moon goddess. Chang'e-2 will test out technology and collect data on possible landing sites for the Chang'e-3 spacecraft, which is scheduled to land on the moon in 2013, Xinhua reported.

According to the state news agency, Chang'e-2 should arrive at lunar orbit about five days after launch. It will eventually swoop down to an orbit just nine miles (15 km) above the lunar surface to take high-resolution pictures of landing areas for Chang'e-3.

After snapping the photos, Chang'e-2 will retreat to an altitude of about 62 miles (100 km) to conduct a study of the lunar surface and dirt. 

The Chang'e-1 probe  launched in October 2007 and conducted a 16-month moon observation mission, after which it crash-landed on the lunar surface by design, in March 2009. 

Chang'e is just one prong of China's burgeoning space program, which has seen three successful manned spaceflights, including the nation's first spacewalk on the most recent mission, the Shenzhou 7 flight of 2008.

Weather forecasts for the Xichang area this weekend are for overcast skies with possible showers, Xinhua reported. 

• The Best Manned Spaceships of All Time
• China's Next Moon Probe to Be Better, Faster Than First
• Making History: China's First Human Spaceflight 

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Trade War! US Trade Protectionism

WTO warns against US possible trade protectionism measures

GENEVA - The World Trade Organization (WTO) reviewed the trade policy of the United States on Wednesday in Geneva, warning against its possible protectionism measures against its trade partners.

Related readings: China seeks trade balance, not surplus Obama: China's growth is 'good for US'  Stop fear tactics against Chinese firms Berger: Protectionism risks are increasing China accuses US of protectionism in probe into steel deal

A relating report was issued by the WTO secretariat with the review. While ranking the US trade and investment regimes as " among the most open in the world," the report also listed possible protectionism measures applied by the United States against its trading partners.

"The United States had 246 antidumping duty (AD) orders in effect in December 2009, 22 more than in December 2007 ... affect imports from 40 countries or territories," and countervailing duties (CVD) "final orders increased from 31 in 2007 to 41 in December 2009," the report said.

The United States is experiencing "a marked slowdown in the pace of negotiating free-trade agreements (FTAs)," the report added.

The report also expressed its concerns over "some anti-recession measures," including "provisions that favored domestic suppliers of goods and services."

Trading issues between the United States and its major trading partner China are also repeatedly mentioned in the report, including the additional imports duty apply on tyre imports from China and the decision by the United States in 2007 to abolish its long-standing policy of not applying CVD on China.

Sun Zhenyu, the Ambassador and Permanent Representative of China to the WTO said in a statement during the review "there is an incremental setback of free trade vis-vis trade protectionism in the US, particularly during and after the financial crisis."

Sun is worried about the side-effect that might be brought about by the expansionary monetary policy of the United States and its step back from the due leadership role in Doha Round negotiations.

During the review, many WTO members blamed the United States for not playing an active part in pushing ahead the Doha round negotiations and urged the United States to assume its role at an early time.

Trade Policy Review is an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. All WTO members are subject to review, with the frequency of review depending on the country's size.

The tenth review of the trade policies and practices of the United States takes place on 29 September and 1 October 2010. The basis for the review is a report by the WTO Secretariat and a report by the Government of the United States of America.

WTO rules China win over US imports dispute

(Xinhua)
Updated: 2010-09-30 07:09

GENEVA - The World Trade Organization (WTO) issued a report of the panel on Wednesday, supporting China over its complaint against measures taken by the United States which have affected imports of poultry from China.

Related readings: United States files two cases against China to WTO  China gets WTO backing in chicken import row with US  Debts to Chinese exporters hit $150b  US demand for overseas products may dip

The panel ruled that Section 727, the Omnibus Appropriations Act of 2009, applied by the US had effectively prohibited the lifting of the ban on poultry imports from China, and inconsistent with the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). 

The panel concluded that the United States trade regime has not acting in accord with the specified provisions of the SPS Agreement and the GATT 1994, and has "nullified or impaired benefits accruing to China under those agreements."

In 2004, China and the United States stopped importing poultry products from each other for fear of the bird flu. China had called off the ban on poultry import from the United States when the situation was relieved.

Access of Chinese poultry to the US market is still blocked, because of the application of Section 727 passed by the US congress, which restricted the United States Department of Agriculture (USDA) and its agency, the Food Safety and Inspection Service (FSIS) from using funds allocated by the US Congress to create a rule to lift the poultry ban on China.

At the request of China, a panel was established by the WTO on 23 September 2009 to investigate the case.

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Global ‘currency war’? G7 meets on 'international currency war' !

IMF chief sees no risk of a global ‘currency war’

Currencies to be discussed at IMF and G20 meetings

WASHINGTON: International Monetary Fund (IMF) chief Dominique Strauss-Kahn said on Tuesday he did not see a risk of a global ‘currency war’ as countries intervened to weaken their currencies but acknowledged it was a concern.

The IMF managing director said efforts by countries to devalue their currencies would be discussed at meetings of the IMF in Washington on Oct 8-9 and the Group of 20 (G20) major economies in South Korea in November.


“There has been a rising concern in recent days about this question,” Strauss-Kahn said. “I don’t feel today there is a big risk of currency war despite what has been written.”

His comments came as more governments around the world move to keep their currencies from appreciating to boost exports and improve trade balances. Japan intervened for the first time in six years on Sept 15 to prevent the yen from worsening a faltering recovery. Colombia and Thailand have made similar moves.

Brazilian Finance Minister Guido Mantega on Monday said the world was in an “international currency war”, as governments manipulate their currencies to improve their competitiveness.

Speaking in general terms, Strauss-Kahn said history had shown that such interventions did not have a lasting impact and the IMF preferred that market forces be left to determine exchange rate values.

“The core of the question is this the kind of solution that we can provide to the global situation or not? The answer is no,” he said, adding, “clearly it is not a global solution”.

Strauss-Kahn said since the world financial and economic crisis had eased, cooperation among major economies “has not been as strong as it was before”. “Most countries have a tendency of going back to their problems,” he said. The IMF chief said the world recovery was “still very fragile” and the major issue for policymakers was whether growth was strong enough to reduce high unemployment. “It will be difficult to say that the crisis is over before unemployment is decreasing,” Strauss-Kahn said.

He said the IMF leaned on the “optimistic side” when it came to the economic recovery in the United States. He repeated that the IMF did not see the risk of a double-dip recession although he noted the US recovery had clearly slowed.

The IMF releases updated forecasts for the world economy next Wednesday. Earlier on Tuesday the fund’s No 2 official, John Lipsky, said the global recovery would remain sluggish into early 2011.

Strauss-Kahn said the recovery in Europe “is not strong enough” and some countries needed tough fiscal programmes “because they cannot afford to go on with the situation they’re in”.

“There is no fiscal austerity in Europe, but there is a need for a very reasonable fiscal path for some countries and the possibility for others to go on with withdrawal of their stimulus,” he added. — Reuters

Tension grows as G7 ministers set to meet over 'international currency war'

Bank of Japan reinstates zero interest rate, adding to fears that countries are weakening their currencies to give their economies a competitive advantage

• David Teather
• guardian.co.uk, Tuesday 5 October 2010 18.14 BST
• Article history

 

A bank teller counts 10,000 yen. Photograph: Yoshikazu Tsuno/AFP/Getty Images

 

Finance ministers from the G7 will hold an informal meeting in Washington this week to discuss growing concerns that the world is in the grip of an "international currency war" as government's manipulate their currencies to bolster exports.

The meeting on Friday, on the sidelines of the annual International Monetary Fund gathering, comes amid rising tensions between the western industrialised nations and China, whose prime minister, Wen Jiabao, is on a charm offensive in Europe this week.

In separate moves designed to weaken currencies, the Bank of Japan reinstated its zero interest rate policy and pledged to buy ¥5tn ($60bn) of assets, while Brazil doubled a tax on foreign investors buying local bonds to put a lid on a recent rally in its currency, the real. It was Brazil's finance minister, Guido Mantega, who coined the "international currency war" phrase last week, following a series of interventions by central banks in Japan, South Korea, Switzerland and Taiwan to make their currencies cheaper.

The concerns about currency manipulation have been heightened by the global recession, with many countries, including Britain, seeing a growth in exports as the means to recovery. A weaker currency means a country's exports become more competitive.

The Bank of Japan set its interest rate target to a range of zero to 0.1%, returning to zero rates for the first time in more than four years and underlining worries about the Japanese economy, which is beset by falling prices. Japanese officials intervened in the currency markets last month to weaken the yen, but the impact was only short-lived. "The pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen's appreciation," the bank said.

Before the IMF meeting, the Institute of International Finance, an industry group representing some of the world's largest banks, urged action. In a letter to the IMF, Charles Dallara, the banking lobby's managing director, called today for greater co-operation. "Urgent action is needed to arrest the disturbing trend towards unilateral moves on macroeconomic, trade and currency issues," he said.

Much of the focus remains on China, which has built its economy on exports and keeps its currency artificially low. Manufacturing figures at the end of last week told a clear story of the divergent economies in the developed world and emerging markets. Factory output in Britain, the US, Spain, Ireland and Greece all fell back sharply during September, while in China, manufacturing output rebounded more quickly than economists had been expecting.

The 16 nations in the eurozone again urged China to allow its currency to appreciate , complaining that Beijing's insistence on keeping the yuan weak was hampering global growth by creating trade deficits in the US and Europe. At a meeting in Brussels, Jean-Claude Juncker, head of the eurozone; the EU monetary affairs commissioner, Olli Rehn, and the European Central Bank president, Jean-Claude Trichet, told Wen that the yuan remained "undervalued". Juncker said: "Given China's important role, we do think that a significant and broad-based appreciation [of the yuan would] promote a more balanced growth to the benefit of both China and the global economy."

Following the Europe-Asia summit, Juncker said the discussions had been "open, frank, but nevertheless friendly" and added that both sides agreed a currency war would be "destructive". But he said the plea for movement on the yuan had been rebuffed by China, which argues that it needs rapid growth in its economy to pull hundreds of millions of people out of poverty. Wen, in return, said the rapidly growing economies of Asia should be granted more power within global institutions and that Europe should give up some of its seats at the IMF.

In Athens at the weekend, Wen attempted to smooth over relations between China and the west by offering support for the euro and suggesting that China would participate in auctions of indebted nations' government bonds, including Greece, as they seek to refinance their struggling economies.

Tensions between Beijing and Washington have been mounting on the currency issue, and Congress has approved legislation enabling the US to impose trade sanctions on China and other nations that manipulate currencies to win competitive advantage. China is also under pressure to stimulate its domestic economy in order to build a market for exports from other nations.

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