G20 drops China-sensitive plaudits on yuan reform

Negotiators had hoped a statement to be signed by the leaders in Canada could include a line welcoming last week's announcement that Beijing was ending a de facto peg that hooked the yuan to the U.S. dollar for much of the past two years.

But two officials briefed on the communique, contacted by Reuters on Sunday, said the line that had been present on Saturday had been erased less than 24 hours later, and was not set to feature in the communique published at the end of talks in Toronto on international economic cooperation.

"China did not want to be explicitly mentioned, even as a good case," one of the officials said.

Chinese officials had said ahead of the summit that debate about the yuan, which Europe and Washington believe is artificially undervalued and trade-distorting, had no place in international forums.

That made it all the more surprising when a draft of the G20 communique which Reuters obtained on Saturday had the line: "We welcome the actions taken, China's efforts to boost domestic demand and to further reform the renminbi exchange rate regime and enhance exchange rate flexibility."

Short of an explicit reference to China, leaders readied an implicit one instead.

"Emerging surplus economies will undertake reforms tailored to country circumstances," a newly tweaked draft communique said, citing as objectives stronger social safety nets, increased infrastructure spending and enhanced rate flexibility.

Chinese officials present in Toronto did not openly repeat misgivings about outside comment on yuan policy. But they did insist that Beijing alone should determine yuan policy and noted that the announced shift in exchange rate policy would not in itself resolve imbalances in international trade.

China felt neither more nor less pressure over the yuan at this G20 summit than at previous G20 gatherings, Zhang Tao, a director-general with the People's Bank of China, told a news conference in Toronto on Saturday.

"If you only rely on exchange rate reform, it is very difficult to address trade imbalances or trade frictions," added Yu Jianhua, a director-general in the commerce ministry.

Chinese President Hu Jintao, who was among the many G20 leaders gathered in Canada, told the summit that China knew it had a crucial role to play in rebalancing the global economy, but the changes that were needed could not happen overnight.

"The trend toward a balanced current account has picked up speed. The momentum toward balanced economic development has increased," he said.

"It will be a long and complex process to achieve strong, sustainable and balanced growth of the world economy. It cannot happen overnight," he said.

Many U.S. economists argue that the yuan is undervalued by anything up to 40 percent versus the dollar and politicians in the U.S. Congress are piling pressure on President Barack Obama to get tougher with Beijing on the grounds that the mismatch in trade is making bad U.S. jobless rates even worse.

In a separate but related development, China's ambassador to the World Trade Organization in Geneva told Reuters on Sunday that excessive demands from the United States explained why the Doha round of talks on global trade liberalization, launched in 2001, were going nowhere.

"The U.S. is the sole member who insists that we're still far away from the conclusion of the round," Sun Zhenzyu said.

"Their new excessive request on an elevated level of ambition is in fact equivalent to a restart of the round and a flagrant deviation from the original negotiation mandates."

(Reporting by G20 team, Writing by Brian Love, Editing by Chizu Nomiyama)