More euros for China?

French President Nicolas Sarkozy visited China on August 25 during his tour of France’s New Caledonia. This relatively unexpected visit has attracted widespread attention and speculation.

On the same day, Sarkozy held a press briefing in the Grand Hall of the People, Beijing, China. The following is some of the content of the briefing.

Ladies and Gentlemen, Good evening,

With Baroin, the Minister of Finance, and Xavier MUSCA, Secretary General of the Elysee, we had a long meeting with President Hu, the Vice Premier, the Minister of Foreign Affairs and the Governor of the Central Bank. The main purpose of this meeting was the preparation of the G20 in November in Cannes.

We have seen a great deal of agreement with the Chinese regarding the assessment we make of the international economic situation and the need to coordinate the economic policies of the G20 members, and to take initiatives to enhance growth in the world so that is appropriate to the situation of each of the economies concerned. It goes without saying that as part of this initiative, China has a role to play as the second largest economy in the world, as the most populous country in the world, and as the monetary power since the emergence of yuan. We wanted to hear from the Chinese side on how they plan to approach the revival of the global economy and we wanted to question them about a number of topics that will be at the heart of the news of the coming weeks, the coming months and perhaps even the next few years. I want to discuss the continuing Chinese effort in favor of increased domestic demand. China’s GDP in domestic demand accounts for 30% of GDP of countries in the euro zone. Our Chinese friends told us, to Francis Baroin and myself, that since the beginning of the crisis, domestic demand in China has 16 to 17% growth. Two points are extremely important and they are both concerning the reform of the international monetary system. You know it’s a significant issue to which the French Presidency attaches great importance. I had come a few months ago to open in Nanjing, also in the presence of Vice Premier of China, a seminar. There has been much progress since. I mean that our positions were closer in one of our objectives because we believe it is inevitable. It is the issue of convertible yuan. We agree with our Chinese friends on the subject, since they too are favorable, eventually, this convertibility allowing the yuan the importance it has on the international monetary scene. And therefore we want progress on defining a path that would eventually, according to an appropriate process without rush, create a real reserve currency in the world and earn an international dimension to yuan. We also discussed ways to expand the capabilities of the IMF support to countries that have capital problems. The agenda does not give rise to a joint press conference since it is a working meeting. Baroin will stay one more day to continue discussions with the Vice Premier in charge of these issues. Xavier Musca himself before I came discussed with his counterpart these issues. And all these should converge in November. So we can announce a number of steps. I emphasized the practical aspect of these measures. China is a key partner, a partner in whom we trust. It was natural in the coming few weeks before the G20 to talk with senior Chinese leaders to ensure that there is no misunderstanding and that we can move forward in the right direction. I will have the same type of discussion with President Obama on September 22 in order to further improve the preparation of the G20. I will also have a number of meetings with President of Brazil, Indian Prime Minister and countries we need support for the G20. This is a brief summary of what has happened in a two and a half hour conversation. If there were one or two questions, I will try to respond freely as Chairman of the G20.

Q. During the conversation, could you assess the degree of concern among Chinese leaders over debt crises in Europe? Do you have to reassure them, for example, by presenting an austerity plan to the French? Have you asked them to buy more European sovereign bond?

THE PRESIDENT – There are at least four questions in your question. First, the concern of President Hu and the Chinese leadership: it is of the same nature as all leaders who concern the situation. There is no reason to be either more or less worried. Second, President Hu is not worried about the situation in the euro area. You know China very well. You know very definitive statements were made ​​by President Hu himself on his confidence in the euro area and in the euro, and I indicated the irreversible determination of Chancellor Merkel and France to defend the euro and that the existence of the euro is not negotiable. I said to President Hu that Germany, like France, has a straight commitment to defend the euro. President Hu told us that he had confidence in the euro. And, it is well placed to have confidence in the euro, since, as you know, the euro against the yuan was quite strongly reassessed. For the yuan has reduced the gap with the dollar and increased with the euro, if my memory and my knowledge is accurate, I do not have to ask President Hu to invest in euros. At the level where the euro is, they do not need me to tell them euro is a better choice.



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