China to be more 'progressive' over setting of yuan's value

China responded to accusations by the US and Europe that it is running an artificially weak currency by pledging yesterday to be more "pro-active and progressive" over the yuan.

Jin Renqing, the Finance Minister, said the markets were already playing a key role in setting the value of the yuan, which was unpegged from the dollar last year for the first time in a decade.

The move comes days before a meeting of the International Monetary Fund and the G7 rich nations where the link between the weak yuan and the global economic imbalances will be at the top of the agenda. It also a sign Beijing is taking seriously the growing criticism from Washington and Europe over China's role in the world economy.

Mr Jin said China would "approach the reform in a more proactive and progressive way", adding: "This is a progressive process. We have given the market a more important role in deciding the exchange-rate level and the market is playing a more important role already."

He rejected the idea that China's foreign exchange policy was to blame for global trade imbalances, arguing that China accounted for less than 5 per cent of global GDP. "So by no means can China's exchange rate have such a great effect on changing global imbalances," Mr Jin said.

On Thursday, the German Deputy Finance Minister, Thomas Mirow, said the yuan's exchange rate would be a "significant element" of the discussion at the meeting of G7 finance ministers on 16 September.

US politicians are pushing for more concessions from China in the run-up to mid-term elections in November. Two senators have drawn up a bill that would impose a 27 per cent tariff on Chinese imports unless Beijing revalued the yuan.

Yesterday, Henry Paulson, the US Treasury Secretary, said currencies should be determined in a competitive open market. "We need more currency flexibility in east Asia and in China," he said.

China will take part in the G7 discussions. But Julian Jessop, international economist at Capital Economics, said: "Beijing will be reluctant to be seen to respond too obviously to external pressure."

Mr Jin's comments are the latest sign that China takes the US's concerns seriously rather than simply dismissing them as rhetoric aimed at a domestic US audience.

Meanwhile Rodrigo de Rato, the managing director of the IMF, warned the growing imbalance between deficits in the West and massive surpluses in China, and in Opec countries, could not be sustained.