China and the European Union (EU) Wednesday agreed to set up two separate high-level dialogue mechanisms on trade and finance to address disputes over trade imbalances and the exchange rate reform of the renminbi.

Premier Wen Jiabao, Jose Socrates, prime minister of Portugal - which holds the rotating EU presidency - and Jose Manuel Barroso, European Commission president, agreed to launch the dialogue mechanisms in March next year at the 10th China-EU Summit in Beijing.

The Chinese government will further let the market determine the renminbi exchange rate and allow more flexibility in its trading band, Wen said at a joint news conference with the EU leaders after a 90-minute meeting.

But he emphasized China will act "in a proactive, manageable and gradual manner," with a view to gradually enabling capital account convertibility.

Europe has complained that an "undervalued" yuan and the rising euro are a key reason for the rising bilateral trade deficit.

Wen acknowledged that the exchange rate played a certain role in the imbalance, but said it was not the sole factor.

"The exchange rate is a cause, to some extent, but not the sole decisive factor for the trade deficit," Wen said at a China-EU Business Summit before he met with the EU leaders.

He said China has never intended to pursue a trade surplus, adding that efforts are being made to promote domestic consumption to achieve more balanced trade.

"The Chinese government attaches great importance to the EU's concerns over the trade imbalance. We have, and will continue to, put in place measures aimed at expanding imports and promoting more balanced bilateral trade," Wen said.

During a meeting with Jean-Claude Juncker, prime minister of Luxembourg and chairman of the Eurogroup of finance ministers, Wen called on the United States, the EU and Japan to shoulder the main responsibility for keeping the international currency system stable.

The euro has appreciated greatly in recent years due to the declining US dollar and international market turbulence, he said.

Wen pointed out that EU exports to China have grown at an annual rate of more than 20 percent over the last two years, compared to the 15 percent average growth rate elsewhere.

He responded to another concern frequently aired by the EU - a lack of strong enforcement of intellectual property rights - by saying that China has been "sincere" in IPR protection.

He said China has, over the past 20 years, set up a "relatively complete" IPR legal framework and strengthened enforcement, which has resulted in "phenomenal progress", adding that such progress took "centuries" in developed countries.

Leaders from the two sides also discussed climate change, the China-EU partnership on Africa and the Taiwan question.

Socrates said the strategic partnership between the EU and China is beneficial to Europe, China and the world at large. He said the EU hopes the two sides can take constructive action to find a trade balance.

He appreciated China's role in major regional and international affairs such as the Korean Peninsula and Iran nuclear issues, saying EU-China cooperation will help resolve global issues.

Barroso hailed the meeting as a "success" and said it has achieved "pragmatic results".

The EU leaders assured Wen that the EU strictly adheres to the one-China policy.