G-7 Welcomes China’s Efforts to Boost Economy, Strengthen Yuan

By Steve Scherer

Feb. 14 (Bloomberg) -- Group of Seven finance chiefs eased their criticism of Chinas exchange-rate policy as the worlds most populous country moved to bolster its economy during the global recession.

Less than a month ago, U.S. Treasury Secretary Timothy Geithner, who attended todays meeting in Rome, said President Barack Obama thought that China was manipulating its currency.

We welcome Chinas fiscal measures and continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi, the G- 7 said today in its final communiqué.

China announced 4 trillion yuan ($585 billion) in spending in November to support the economy amid the global recession. China, the worlds second-biggest energy consumer, may approve a stimulus plan for the oil refining and petrochemicals industries by next week to help spur the slowing economy, two industry officials said yesterday.

We very much welcome the steps theyve taken to strengthen domestic demand, and welcome Chinas commitment to exchange rate reform, Geithner told reporters today in Rome, a view echoed by French Finance Minster Christine Lagarde.

The more conciliatory tone on China is the key departure from previous statements, Geoffrey Yu, a London-based foreign-exchange strategist at UBS AG, said in an e-mailed statement. The G-7 has realized that China needs to be brought into the fold of the global financial system rather than be treated as a pariah just because of yuan inflexibility.

Shifting Position

Since first describing flexible exchange rates as desirable after a 2003 meeting in Dubai, the G-7 has swung between pressuring and praising Chinas exchange rate policy.

Having cheered a July 2005 revaluation, the officials said the following December that further shifts would aid the world economy and four months later said China especially should adjust its currency.

In February 2007 the G-7 encouraged the yuan to move more on a trade-weighted basis and at the three meetings between October 2007 and last April pressed China to allow an accelerated appreciation.

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