Turkey, China to shun dollar in trade with each other


By Joe Parkinson
Dow Jones Newswires
via The Wall Street Journal
Friday, October 8, 2010


ISTANBUL, Turkey -- Turkish Prime Minister Recep Tayyip Erdogan and China Premier Wen Jiabao said Friday their two countries would from now on trade using their own currencies, effectively excluding the U.S. dollar.

The two leaders also pledged to triple trade between China and Turkey to $50 billion within five years, and to $100 billion by 2020, speaking at a joint news conference in Ankara that marked the final stop of Mr. Wen's European tour.

"We are forming an economic strategic partnership. ... In all of our relations, we have agreed to use the lira and yuan," Mr. Erdogan said.

... Dispatch continues below ...


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Mr. Wen's trip to Europe has been dominated by a dispute over the yuan's valuation, with the U.S. and European Union warning that keeping the yuan low to boost Chinese exports could hamper the fragile global economic recovery.

Mr. Erdogan made no comments about the value of the yuan Friday, though Turkey runs a large trade deficit with China. That deficit -- $11.1 billion in 2009 -- contributes to a ballooning current account deficit widely seen as the weakest point in Turkey's strong recovery from the global financial crisis. The Turkish lira has been rising strongly against the dollar, as well as the yuan.

Instead, Mr. Erdogan said the two countries signed eight trade agreements on energy and infrastructure, including Chinese investment in two high-speed rail networks, one of which would run between the capital Ankara and Istanbul.

Mr. Wen, for his part, said he "appreciated" Ankara's policy toward Iran, although he gave no details. Both China and Turkey are major importers of Iranian energy and have been reluctant to support a U.S.-led policy to secure tough international sanctions against Iran. The sanctions, the most intrusive of which have been imposed by Washington and the European Union, aim to persuade Tehran to suspend development of a nuclear fuel program that can be used to produce either civilian or weapons grade fuel. Turkey voted against a new round of limited sanctions in the United Nations Security Council earlier this year.

Chinese warplanes last month took part in a military training exercise at an airbase in central Turkey, a spokesman for Turkey's chief of the general staff confirmed Friday, marking a rare bilateral exercise between China and a North Atlantic Treaty Organization member. Turkey recently discontinued similar exercises with Israel.

The announcement on trading currencies was just the latest in a series of similar agreements Beijing has made as it seeks to increase use of the yuan around the globe. In late September, China supported a Russian proposal to start direct trading between the yuan and the ruble. It has brokered a similar deal with Brazil.

"China does this with the trade partners that it believes will be beneficial to it in future. ... It clearly sees Turkey as a big potential trade partner," said Hans Redeker, chief currencies analyst at BNP Paribas in London.

In the meantime, the value of the yuan has become a growing point of friction between Beijing and U.S. as well as with the EU -- by far China's two biggest trading partners.

U.S. Treasury Secretary Timothy Geithner in a speech on Wednesday warned of a potential downward spiral of competitive currency devaluations. Referring to China, he said: "When large economies with undervalued exchange rates act to keep the currency from appreciating, it encourages other countries to do the same."

Mr. Wen, speaking in Brussels just before Mr. Geithner's remarks, called on European business and political leaders to tone down their attacks on Beijing. "If the yuan is not stable, it will bring disaster to China and the world," he said.

Those broadsides came as leaders prepare to gather in Washington for meetings at the International Monetary Fund later Friday, to be followed by two sessions of the Group of 20 industrialized and developing nations.

Premier Wen made no reference Friday to Western pressure to revalue the yuan. Instead he pledged to develop "sustainable" trade relations with Turkey. China and Turkey were the fastest growing G-20 economies in the second quarter -- each grew by 10.3% compared with a year earlier. The two countries saw their trade surge from around $1 billion in 2000 to $12.6 billion in 2009, down from $17.1 billion in 2008 as a result of the global recession, according to figures from Turkstat, the Turkish statistics agency.

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