Sarkozy tackles Hu on yuan and human rights

BEIJING Mon Nov 26, 2007 1:07pm EST

1 of 3. French President Nicolas Sarkozy (L) shakes hands with Chinese President Hu Jintao during a signing ceremony for the various commercial contracts between the two countries, at the Great Hall of the People in Beijing November 26, 2007. Sarkozy used a state visit to China on Monday to publicly urge Hu to let the yuan rise more swiftly against Europe's single currency.

Credit: Reuters/Peter Parks/Pool

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BEIJING (Reuters) - French President Nicolas Sarkozy brought his trademark directness to China on Monday, publicly urging President Hu Jintao to let the yuan rise more swiftly and cajoling Beijing to do more to respect human rights.

Hu listened impassively as Sarkozy, fresh from overseeing the signing of business deals worth nearly $30 billion, praised China but said it had to shoulder growing responsibilities on issues such as the environment and exchange rates.

"We need to arrive at currency rates that are harmonious and fair," Sarkozy said with the frankness that has become the hallmark of his young presidency.

"This means that, for its own sake as well, China needs to accelerate the appreciation of the yuan against the euro," he said at a joint media appearance with Hu in the Great Hall of the People off Tiananmen Square.

The European Union, which has overtaken the United States this year as China's largest trading partner, has been ratcheting up pressure on Beijing to correct what it sees as the yuan's unfair undervaluation.

It has also fallen in line with Washington by taking a harder line on trade issues such as intellectual piracy and barriers to Chinese markets.

EU Trade Commissioner Peter Mandelson irked China with a warning that its reputation was at risk after a series of product safety scandals and that it must do more to tackle the problem.

Vice Premier Wu Yi, known as China's "Iron Lady", was upset by Mandelson's remarks, made at a conference in Beijing. "I am extremely dissatisfied," an angry-sounding Wu told reporters.

TOUCHY ON TIBET

China's relations have been particularly fraught with Germany since Chancellor Angela Merkel infuriated Beijing two months ago by meeting the Dalai Lama, Tibet's exiled spiritual leader.

Sarkozy, on a three-day state visit, did not touch on Tibet in his remarks, but he took the opportunity to urge China to do more on press freedom, the death penalty and the rule of law.

The president was also direct on China's responsibility as a leading emitter of greenhouse gases to step up its efforts to tackle global warming.

"We hope China's growth can continue, but we also hope China's growth is carbon-free and environmentally friendly," he said.

Sarkozy later toured trendy contemporary art studios housed in a converted East German-built factory complex, before going into talks with Prime Minister Wen Jiabao that could touch on international confrontation over Iran's nuclear activities.

France, Germany, Britain and the United States want tougher sanctions against Iran over its atomic work, which the West says disguises plans to build a bomb. China and Russia oppose this.

Despite that stand-off, French officials say the exchange rate is the main source of tension in Sino-European relations.

China has allowed the yuan to fall about 10 percent against the euro since July 2005 while pushing it up more than 11 percent against the dollar.

HIGHER YUAN

The central bank, which keeps the yuan on a tight leash, set the yuan on Monday at 7.3942 per dollar, the highest level since the Chinese currency was revalued in July 2005.

The euro's strength is causing growing consternation in the EU, whose trade deficit with China is soaring.

Despite worries that the euro is denting Europe's competitiveness, planemaker Airbus clinched its largest order to date when China signed a framework agreement to buy 160 planes, topping a contract last year from Beijing to buy 150 aircraft.

French officials said China would pay around 10 billion euros ($14.8 billion) for the jets, compared with Airbus's list price of $16.7 billion.

In addition, China agreed to take a 5 percent risk-sharing stake in the development of the A350. The $10 billion project is Airbus's attempt to catch up with Boeing's 787 Dreamliner in the fast-growing mid-sized jetliner market.

French state-owned nuclear energy group Areva signed an 8 billion euro ($11.86 billion) deal with China for two nuclear reactors and more than a decade of fuel.

Areva, which said the value of the contract was a record for the global nuclear industry, has asked to be paid partly in euros to protect itself against the fall in the dollar, chief executive Anne Lauvergeon said.

She said this was a first for a major deal with China.

Louis Gallois, chief executive of Airbus's parent company, EADS, said the orders for the 160 jets -- 110 single-aisle A320s and 50 twin-aisle A330s -- should be confirmed by year-end.

On top of that contract, Airbus said China Southern Airlines had bought 10 twin-aisle A330 aircraft in a deal worth $1.8 billion at list prices.

Earlier, Gallois told Reuters that the strength of the euro could lead to a massive increase in outsourcing of production to lower-cost countries if it was not reined in. Airbus sells its planes in dollars, but close to half of its costs are in euros.

A high-powered European Union delegation is due in Beijing on Tuesday to further hammer home the message that Beijing needs to let the yuan climb, not only to ease global trade imbalances but also to cool its economy and tamp down inflation.

(Writing by Alan Wheatley; editing by Ken Wills and Roger Crabb)

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