Nov. 7 (Bloomberg) -- Chinese central bank Governor Zhou Xiaochuan said he doesn’t think his country is facing too many foreign demands to let the yuan strengthen, deflecting calls from Europe and Japan to do just that.

“The pressure from the international community to allow yuan appreciation is not that big,” Zhou told Bloomberg News yesterday as he arrived in St. Andrews, Scotland for a meeting of finance chiefs from the Group of 20 nations.

China has kept a lid on the yuan since July 2008, irritating foreign policy makers as exporters such as France’s Sanofi-Aventis SA shoulder the pain of the dollar’s slide this year. Zhou’s comments came as Japanese Finance Minister Yoshihiko Noda told reporters before the G-20 meeting that the yuan’s exchange rate should be more “flexible.”

A day earlier, European Central Bank President Jean-Claude Trichet called for an “orderly and progressive appreciation” of the Chinese currency.

“The eurozone and other G-10 nations wish to see the yuan strengthen, somewhat in contrast to Governor Zhou’s view,” said Geoffrey Yu, currency strategist in London at UBS AG. “We believe the yuan will remain stable.”

G-20 finance ministers and central bankers including Zhou, Trichet and U.S. Treasury Secretary Timothy Geithner are gathering in the golf resort for their last meeting of the year. They will conclude talks today by releasing a statement about 4 p.m.

Lopsided Flows

Topping their agenda is devising a framework to help them even out the lopsided flows of trade and investment that some economists blame for helping cause the financial crisis.

International Monetary Fund Managing Director Dominique Strauss-Kahn said in a Nov. 3 interview that he expects China will address its “undervalued” currency. Yuan forwards rose this week as signs that exports are improving fueled speculation officials will allow the currency to resume its rise next year.

Twelve-month non-deliverable yuan forwards rose 0.3 percent to 6.6305 per dollar as of 5:30 p.m. in Shanghai, signalling appreciation of 3 percent. The contracts rose 0.4 percent this week.

Declines in the dollar and yuan are causing consternation from Japan to France. Sanofi-Aventis Chief Executive Officer Chris Viehbacher says the weaker dollar is a “problem” for France’s largest drugmaker. Takeda Pharmaceutical Co., maker of the world’s best-selling diabetes drug, Actos, last month cut its revenue outlook because of the stronger yen.

Turning the Screws

“This pressure will grow on China next year,” said Peter Frank, a currency strategist at Societe Generale SA in London. “In a few months, if its economy and exports are still strong, you’re going to see the screws turned on it.”

The G-20 dispute on currencies contrasts with their common resolve to keep implementing stimulus measures. U.K. Chancellor Alistair Darling said steps to shore up demand and repair the financial system should be maintained, echoing comments from Chinese Commerce Minister Chen Deming. Chen said last month that withdrawing stimulus measures risked provoking another slump.

“The biggest risk to recovery would be to exit before the recovery is real,” Darling said in a speech last night. “We cannot yet be sure the global recovery has sufficient momentum to be sustained and durable.”

Fragile Recovery?

The potential fragility of the rebound was highlighted yesterday by a report showing the U.S. unemployment rate soared more than economists expected in October, climbing to a 26-year high of 10.2 percent. In the euro region, joblessness may rise to 11.7 percent next year, the IMF forecast Oct. 1.

“This is not a self-sustained recovery,” Swedish Finance Anders Borg told Bloomberg Television yesterday in St. Andrews. The G-20 must continue “expansionary policies for a substantial time period.”

Policy makers need to balance the need for ongoing economic support against concerns that ample liquidity could stoke asset bubbles as traders avail of near zero interest rates in the U.S., Europe and Japan. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”

Gold futures jumped to a record yesterday, topping $1,100 an ounce, the MSCI World Index of stocks has risen more than 60 percent since March and China’s Shanghai Composite Index posted its biggest weekly gain in more than three months yesterday. Still, Zhou said that asset bubbles are not as “serious” a problem in China as some economists say.

Darling, who is hosting the meeting, said Nov. 5 that the G-20 had to develop a way of tackling bubbles, adding to similar calls from the IMF, and from developing nations including Brazil. Egyptian Finance Minister Youssef Boutros-Ghali urged the richest nations to tighten rules to prevent future crises.

“I am asking the West to regulate themselves so that we don’t sink with them again,” he said in an interview.

To contact the reporters on this story: Zijing Wu in St. Andrews at zwu17@bloomberg.net; Emma Ross-Thomas in St. Andrews at erossthomas@bloomberg.net

Last Updated: November 6, 2009 19:01 EST