UPDATE 2-EU should not press China on yuan - Chinese PM

Published 10/06/2010, 11:51 AM

(Adds Wen's comments on the dollar)

BRUSSELS, Oct 6 (Reuters) - The European Union should stop pressing China to revalue the yuan as a rapid revaluation could cause turmoil, Chinese Premier Wen Jiabao said on Wednesday.

Wen told an EU-China business forum on the sidelines of a summit with EU leaders that European leaders should turn to the U.S. dollar for an explanation of the fluctuations in the exchange rate of the euro.

China's trade surplus against the United States was due to the specific structures of the two economies, not the yuan exchange rate, he said.

A sharp appreciation of the yuan, also known as the renminbi, could lead to social unrest in China, with severe consequences for global stability, the Chinese Premier said.

However, he stressed Beijing would implement reform of its exchange rate regime of its non-convertible currency which would lead to a gradual rise.

"Do not work to pressurise us on the renminbi rate," the premier said, departing from a prepared speech. "Yes, we are going to proceed with the reforms."

He noted that a U.S. congressman had predicted social unrest in China if there was a rapid rise in the yuan exchange rate.

"If China saw social and economic turbulence, then it would be a disaster for the world," Wen said.

"Many of our exporting companies would have to close down, migrant workers would have to return to their villages."

Since China ended its peg with the dollar on June 19, the yuan has gained 2.4 percent against the U.S. currency but has fallen by 9.3 percent against the euro.

Euro zone policymakers urged China this week to allow a substantial appreciation, and European Council President Herman van Rompuy told Wen in a speech at the business forum that multilateral cooperation on currencies would send a strong signal to world markets. (Additional reporting by Chen Aizhu in Beijing; Editing by Susan Fenton)

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