Addressing EU criticisms over its ballooning trade deficit with China, which the bloc blames mainly on the yuan's weakness against the euro, Chinese Premier Wen Jiabao told the summit participants that Beijing did not seek the lopsided trade nor was it solely responsible for the currency situation.

'In China's open market, every trading partner is treated equally,' said Mr Wen, who along with other Chinese leaders and officials vowed to continue dialogue with their European counterparts to resolve the currency spat.

However, the Chinese Premier also told the audience of European and Chinese business leaders attending the summit that China would hold firm to its policy of reforming the yuan gradually.

'China will continue to reform the RMB exchange rate regime in a gradual, proactive and manageable manner,' he said, while insisting the Chinese currency was not the only reason for their trade dispute.

He added: 'I believe that the main cause of the rise of the euro is the big fall in the value of the US dollar.'

Yesterday's main act was the meeting of President Hu Jintao, Mr Wen and top Chinese banking and finance officials with the EU delegation led by Portuguese Prime Minister Jose Socrates - whose country holds the rotating presidency of the EU - and European Commission President Jose Manuel Barroso.

The annual summit - the 10th so far - had been preceded by loud calls from European leaders and officials for Beijing to allow its currency to appreciate faster against the euro, as cheap Chinese goods flood European markets.

EU trade officials have lately become as vocal as their American counterparts in criticising what they say is a significantly undervalued yuan.

The trade deficit of the EU with China is likely to reach a whopping 160 billion euros (S$341 billion) this year, while the United States' trade deficit with China was US$232.5 billion (S$336 billion) last year.

The 27-member EU bloc is China's largest trading partner.

In response, Mr Hu told EU leaders yesterday that both sides should 'strengthen strategic mutual trust' through multi-level political dialogue and consultation, the official Xinhua news agency reported.

Beijing also agreed to the setting up of a working group on currency issues by the Chinese and European central banks.

The move was announced yesterday by senior European officials in charge of monetary and macroeconomic policies following two days of meetings with Mr Wen, Finance Minister Xie Xuren and Chinese central bank governor Zhou Xiaochuan on the sidelines of the China-EU Summit.

'We did not come to China to lecture China, but wanted to explain our concerns and our view of the global picture before us,' Mr Jean-Claude Juncker, chairman of the eurozone's finance ministers' group, said at a press conference yesterday afternoon.

He added that 'it is difficult to understand, when China is exporting less to the US than Europe, why the yuan is appreciating vis-a-vis the dollar and depreciating vis-a-vis the euro'.

Since Beijing allowed a 2.1 per cent increase in the value of the yuan against the dollar in July 2005, it has allowed the currency to appreciate by almost 10 per cent.

In comparison, the yuan has fallen about 11 per cent against the euro.

clare@sph.com.sg