Oct. 19 (Bloomberg) -- China is facing broader pressure to let the yuan strengthen as finance ministers and central bankers from the Group of Seven nations meet today.

After a four-year U.S. campaign to win more foreign- exchange flexibility from China, governments in Canada and Europe are now warning their economies are being hurt by the yuan's failure to gain against their currencies.

``The attention on China is growing wider,'' said Gilles Moec, who used to work at the Bank of France and is now senior economist at Bank of America Corp. in London. ``The feeling now is something more has to be done on the yuan and the G-7 will be looking to make its case with more urgency.''

The result may be sharper criticism of China from the G-7 after their talks end in Washington. Attacking China will provide U.S. Treasury Secretary Henry Paulson and French Finance Minister Christine Lagarde with common ground after they divided on the risks posed by the euro's climb to a record against the dollar.

The G-7 meeting, the first since credit markets sold off in August, is underway and will also address liquidity conditions and the role of credit-rating companies, officials said. The group, made up of the U.S., U.K., Japan, Germany, Canada, Italy, and France, is expected to release a statement after 6 p.m. in Washington.

Lopsided Slump

The dollar's slide to its weakest since 1997 this month has been lopsided. The yuan has advanced 3.9 percent against the dollar so far this year, less than half the euro's gain and a fraction of the Canadian dollar's 20 percent surge.

What makes Europe's concern about burden-sharing more pressing is the yuan has fallen 4.1 percent versus the euro, making China's exports more competitive. It has dropped 13 percent against Canada's dollar.

``We have a real problem about the yuan,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs a group of counterparts from the 13 euro-region nations, and will attend the G-7 meetings, said Oct. 10.

The euro-area trade gap with China widened 25 percent to a record 59.9 billion euros ($85.6 billion) in the seven months through July, EU figures showed yesterday.

``We are concerned, very concerned with the huge trade deficit between Europe and China,'' European Commission President Jose Barroso said yesterday.

Canada on Board

Bank of Canada Senior Deputy Governor Paul Jenkins, for his part, told reporters in Ottawa yesterday ``We will continue to argue that greater exchange-rate flexibility in China is in their best interests.'' Canadian Finance Minister Jim Flaherty told reporters in Washington today that it ``wouldn't be surprising'' if the G-7 steps up its pressure on China.

People's Bank of China Governor Zhou Xiaochuan said yesterday the country will make the yuan freely convertible ``eventually'' though it currently has no timetable for the plan. In Washington, Deputy Governor Wu Xiaoling said China is moving in the right direction and eventfully other governments will be satisfied.

China controls the yuan by buying foreign currency to limit its appreciation. That has spurred the nation's central-bank reserves to a record $1.4 trillion.

Legislators Complain

The Bush administration, pushed by a Congress that threatens legislation on the issue, has sought a wider band of fluctuations for the yuan and a faster pace of gains. U.S. officials have welcomed signs that a coalition is building to pressure China.

``The U.S. has been public for some time about the importance of China moving to a market-driven exchange rate,'' David McCormick, the U.S. Treasury undersecretary for international affairs, said Oct. 17. ``We welcome the efforts of the Europeans to make that case to the Chinese as well.''

``If they have a united front, that could generate a reaction'' in currency markets, said Sophia Drossos, a foreign- exchange strategist at Morgan Stanley in New York, who used to help manage U.S. currency reserves at the Federal Reserve Bank of New York. ``The market would take that as signal to sell the dollar against Asian currencies.''

The joint targeting of China may be one consequence of an inability to agree on action to stem the dollar's decline against the euro, which the French and Italian governments have blasted. Lagarde, who will be attending her first G-7, on Oct. 5 said Europeans should discuss selling euros to ease the currency's advance. She also called on Paulson this month to state ``loud and clear'' that he favors a strong dollar.

Paulson Approach

Paulson, while hewing to his predecessors' statements that a ``strong dollar'' is in the U.S. interest, favors a hands-off approach toward currencies. Before a February G-7 meeting, he rebuffed calls from Europeans to fault Japan for a weakening yen, praising the Japanese for a ``market-determined'' currency.

European officials ``won't be surprised because they know I believe a strong dollar is in our nation's best interest,'' Paulson said in an interview with Fox Business Network on Oct. 16. ``They also know I believe currency values should be set in a competitive marketplace based on underlying economic fundamentals.''

Europe's G-7 members also have a divided caucus, undermining Lagarde's message. German Finance Minister Peer Steinbrueck said Oct. 8 that ``I prefer a strong euro.''

Paulson has little incentive to arrest the dollar's decline, because the cheaper currency has helped stoke record U.S. exports, cushioning the economy from the worst housing recession since 1991.

``The U.S. has no incentive to fight the current market trend,'' said Marco Annunziata, chief economist at UniCredit Markets & Investment Banking in London. ``Europe is likely to find itself isolated as well as divided.''

To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; Kevin Carmichael in Washington at kcarmichael@bloomberg.net

Last Updated: October 19, 2007 13:53 EDT