Committee have been widely applied in international banking industry in more than
30 years since its establishment.^1
7.1.2 Fields Involved in China-EU Exchanges in Global
Financial Governance Before the Crisis
China and the EU engaged in exchanges regarding the exchange rate, banking
supervision rules, the opening of China’sfinancial market, etc. before the crisis.
China and the EU placed different emphasis on these issues due to differences in
interest.
7.1.2.1 The Exchange Rate Issue
The RMB exchange rate was the main concern of the EU in globalfinancial
governance. The RMB exchange rate became a hot topic in globalfinancial gov-
ernance and China and the EU discussed it at bilateral and multilateral levels before
the crisis. China’s foreign trade hasflourished with its astonishing growth in
exports and has thus accumulated massive trade surpluses since its accession to the
WTO. Meanwhile, China’s RMB exchange rate had always been subject to the
managedfloating exchange rate system and RMB appreciation was slow. This
dissatisfied countries that had trade deficits with China, including EU countries.
The EU discussed the RMB exchange rate as an important issue in globalfinancial
governance on various occasions. In spite of this, in sharp contrast to the attitude of
the USA, the EU exerted relatively low pressure on the RMB exchange rate, took
into account China’s actual situation and its criticism was certainly constructive.
China must face the reality that preservation and increase of the value of China’s
foreign exchange reserve was vulnerable to the depreciation of the USD. The USD
was weak and was declining against the RMB before the crisis. The depreciation of
the USD led to continuous shrinkage of China’s enormous foreign exchange
reserve accumulated by trade surpluses. In response to this situation, China reso-
lutely opposed depreciation of the USD while actively seeking foreign exchange
reserve assets in other currencies. The EUR also rapidly rose against the USD in
this period, but the EU did not severely criticize depreciation of the USD. China
and the EU did not have significant consensus on opposition against depreciation of
the USD. However, China and the EU reached a consensus on the status and roles
of the EUR. The EUR was strong and was also the main international reserve
currency second only to the USD in this period. Therefore, China was extremely
(^1) Baidu Encyclopedia: explanation of nouns“Basel Committee on Banking Supervision”,http://
baike.baidu.com/view/983278.htm.
142 X. Hou