The Chinese government will further allow the market to determine the yuan exchange rate and more flexibility to the currency band, Premier Wen Jiabao said yesterday.

Wen made the remarks during a speech at the fourth EU-China Business Summit in Beijing, which attracted about 500 entrepreneurs from China and the European Union.

However, he emphasized China would improve the exchange rate "in a proactive, manageable and gradual manner."

Some Western countries have been pressuring China to revalue its currency at a faster pace, complaining the exchange rate is the cause of global economic imbalance and mounting trade deficits.

"Exchange rates are a cause, but not the sole decisive factor, for trade deficits," Wen said. "Since the yuan appreciated, China has seen no dwindling exports, which is a testimony to the existing global industrial structure and the competitive advantages enjoyed by Chinese products."

Wen said the yuan exchange rate against the euro is determined by the yuan-to-greenback rate and the US dollar-to-euro rate in the international market.

He believes the recent plunge in the US dollar is the main cause of an appreciating euro.

And he called on the US, the EU and Japan to shoulder the main responsibilities for keeping the international currency system stable.

During a meeting with Jean-Claude Juncker, president of Eurogroup, Wen asked the world's three major economies to further strengthen coordination, and contribute to the orderly adjustment of the international exchange rate system.

The EU's top finance officials have warned that the weak yuan and looming Chinese trade surplus threatened to spark "a backlash" in Europe.

The EU impatience is growing over the trade surplus, which hit US$190 billion last year and expected to reach US$253 billion this year. The weakness of the yuan against the euro also makes exports to China more expensive.

China has fully noted the EU's concerns on the exchange-rate issue.

Wen said China and the EU are most important trade partners, and are deepening their cooperation in investment, finance and other fields.

Their cooperation is mutually beneficial, and has boosted their economies and contributed to the global economy's performance, he added.

Juncker, who is also prime minister and minister of state and finance of Luxembourg, said he hopes to see more flexibility in the yuan exchange rate, which he said will help ease the China-EU trade imbalance, and prevent trade protectionism. Jean-Claude Trichet, president of the European Central Bank, and Joaquin Almunia, commissioner for economic and monetary affairs of the Commission of the EU, also attended that meeting.

"The incomes of rural and urban Chinese residents are growing, adding to the momentum of potential consumption," said Wen, stressing that European enterprises will find more opportunities waiting in China.