China and Europe confronted each other over trade and currency imbalances during high-level talks in Beijing yesterday, with the EU seeking a level playing field for trade and China insisting any change in the value of the yuan must be gradual, writes Clifford Coonanin Beijing

The EU is upset at the way that the tightly managed Chinese yuan has slid 8 per cent against the euro since July 2005, even though Beijing has let its currency rise 10 per cent against the dollar over the same period. It has surged at a 16-per cent annualised rate versus the US dollar in the past six weeks.

Chinese policymakers have so far been wary of letting the currency rise too fast for fear of harming jobs in the export sector. For their part, Europe and the US have long tried to convince Beijing that China would benefit on balance from a stronger yuan at a time of rising inflation.

European Central Bank president Jean-Claude Trichet indicated that China could be moving towards a stronger exchange rate for the yuan. "We heard this idea that going in the direction that we are suggesting would perhaps be the attitude of the Chinese authorities, but I wouldn't say anything more than that," Mr Trichet told a news conference.

Eurogroup chairman Jean-Claude Jüncker, Mr Trichet and commissioner for economic and monetary affairs Joaquin Almunia were in Beijing for two days of talks, during which they met premier Wen Jiabao, People's Bank of China governor Zhou Xiaochuan and finance minister Xie Xuren.

The ECB and the People's Bank of China will set up a working group to examine currency issues. The currency issue is spilling over into the political arena and causing tension between the EU and China.

For his part, Premier Wen reaffirmed his government's long-standing position that the yuan would eventually be allowed to trade more freely.

European steel makers filed a fresh complaint on Tuesday against imports of steel from China that they said were being sold below the cost of production. The trade deficit between the 13-country euro zone and China rose 25 per cent in the first eight months to €70 billion and there are fears this could fan the fires of protectionism. "We have to correct this obvious imbalance . . . we share with our Chinese friends a common diagnosis that the Chinese currency should appreciate in a gradual but [ sped-up] way in its relations with the euro," said Mr Jüncker.

EU officials told the Chinese authorities that "the fact that the Chinese currency is depreciating against the euro, and by contrast is appreciating against the dollar, is creating a lot of problems for the European economy".

There have been numerous high-level meetings between the EU and the Chinese this week, including talks between Chinese politburo standing committee member Li Keqiang and European Commission president José Manuel Barroso at the Great Hall of the People.

President Hu Jintao also met an EU delegation including Mr Barroso, Portuguese prime minister José Sócrates and trade commissioner Peter Mandelson.