Europe and China face off over trade, currency

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BEIJING, Nov 28 (Reuters) China and the European Union today kicked off a summit marked by mutual recriminations over trade frictions ranging from product safety to the value of the Chinese currency.

A host of EU leaders has descended on Beijing for a set of meetings expected to touch on sore spots including China's currency policy and what the European Union sees as its lax controls over fake goods.

At the start of the talks, Li Keqiang, a newly elected member of the Communist Party's top leadership who is likely to become a vice premier next year, praised the strengthening of economic and political ties.

''The cooperation and development has brought real benefits to the peoples of both China and the EU,'' Li told European Commission President Jose Manuel Barroso.

''Especially on major international issues, our consultation and coordination are frequent and political trust has constantly grown.'' Despite Li's conciliatory tone, all signs over the past few days have pointed to significant differences of position over the pace, if not the direction, of China's economic reforms.

EU Trade Commissioner Peter Mandelson raised hackles by criticising Beijing for not acting quickly enough to address the problems of food and product safety or piracy of intellectual property.

Dismayed by the yuan's failure to strengthen against the euro, European monetary officials led by European Central Bank President Jean-Claude Trichet are also in Beijing to press their case that China needs to let its currency trade more freely.

While the yuan has risen 9.7 per cent against the dollar on top of its initial 2.1 per cent revaluation in July 2005, it has fallen about 11 percent in total against the euro.

The People's Bank of China said yesterday that it and the Eurogroup officials had come to a basic agreement on avoiding big swings in exchange rates, but earlier comments by Premier Wen Jiabao suggest Beijing is sticking to its gradualist approach.

The European Union's tone has toughened along with a surge in its trade deficit with China, which Brussels expects to rise nearly 30 per cent this year to 253 billion dollar.

Stanley Crossick, founding chairman of the European Policy Centre in Brussels, said Chinese officials had failed to register how strongly felt were European complaints about trade and the deficit.

Beijing was exhibiting a ''dangerous complacency'' in the face of growing protectionist sentiment in Europe.

''In Europe it's building up against you (China), and you don't seem to be taking that into account,'' Crossick said.

The European Union will also press Beijing on human rights, raise concerns about China's increasing role in development aid to Africa and discuss issues including North Korea, Myanmar and Iran, an EU official told Reuters.

REUTERS SW BST1009

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