UPDATE 3-Germany's Merkel urges China to use influence on Iran
By Lucy Hornby and Andreas Rinke
BEIJING Feb 2 (Reuters) - German Chancellor Angela Merkel urged China on Thursday to use its influence to persuade Iran to give up its nuclear weapons programme, at the start of a three-day visit when she will also seek China's support for the ailing euro.
Merkel is expected to make the case for tighter sanctions on Iran, originally proposed by the United States and designed to prevent it from developing nuclear weapons. She said she has already had "long discussions" with President Hu Jintao and Premier Wen Jiabao on Iran sanctions.
"If we talk about the European sanctions against Iran, the question is how China can make better use of its influence to make Iran understand that the world must not have another power with nuclear weapons," Merkel told an audience at the Chinese Academy of Social Sciences.
Merkel's China visit illustrates the delicate nature of EU-China relations, where Europe pushes China to sacrifice its commercial interests to help on Iran while at the same time asking for its help in resolving a worsening debt crisis.
Indeed, Chinese Premier Wen Jiabao appeared to reject the pressure to do more on Iran, telling journalists later in the day that China objected to Western nations politicizing the "normal commercial relationship" it has with the Islamic Republic, echoing language China has used before.[ID:nL3E8CJ1CV ]
Wen also said that China was considering greater involvement in the stability funds that have been set up to help pull Europe out of its deepening debt crisis.
China, with its $3.2 trillion worth foreign exchange reserves, is often seen as a potential source for the funds that are needed to bail out some European governments.
RELUCTANT ON IRAN
Merkel said she hoped the U.N. Security Council could pass a unanimous resolution on the Iran issue.
The United States imposed the harshest sanctions on Iran when President Barack Obama, on Dec. 31, signed into law sanctions on transactions involving Iran's central bank.
The European Union last week imposed a ban on the import, purchase or transport of Iranian oil.
China has long refused to support sanctions on Iran, although Wen Jiabao said last month that Beijing "adamantly opposes" Iran developing nuclear weapons.
Iran says its nuclear programme is for civilian use. China has much to lose by cutting back on Iranian oil purchases. Beijing imports 11 percent of its crude from the Islamic Republic, its third biggest supplier.
Merkel could urge Beijing to further cut its crude imports from Iran, a German source said earlier, but that is likely to go unheeded. Turning away that oil would mean paying a higher price to get it from another supplier.
"China opposes the use of nuclear energy for proliferation but believes it is possible to use it for peaceful purposes," said Li Xiangang, an former Chinese diplomat in Tehran who is now at the China Institute of International Studies.
"Energy sanctions against Iran will only cause world oil prices to rise and hurt the global economic recovery. That is why I think China is not supportive of further sanctions on Iran."
China would only act after the International Atomic Energy Agency sends inspectors to Iran, Li said.
A CALL FOR OPEN MARKETS
Merkel also pressed China to improve protection of intellectual property rights, calling on it to ensure that German businesses had reciprocal access to its markets.
That concern will likely be repeated when she travels to Guangzhou in southern China on Friday for a business summit. Merkel is accompanied by a number of German CEOs, who during a similar summit two years ago also pressed for more market access.
On Thursday, she toured an ancient alley in Beijing that is now home to shops and restaurants, one of the few to survive the razing of the centuries-old capital to build shopping malls and office blocks.
Germany enjoys strong exports to China, especially in machinery and high-tech products. But Chinese exports have eroded manufacturing in its European neighbours, and Chinese efforts to move up the value chain could also threaten German business in future.
For China, the visit is a chance to be briefed directly on the European crisis. In her speech, Merkel emphasized that European countries will need better fiscal discipline and more budgetary integration.
European countries will need to cut red tape and barriers to employment if they are to grow, she said.
Chinese leaders view Merkel -- and Germany -- as the definitive voice on the European crisis, in part because of Germany's economic strength compared with its European neighbours, analysts say.
Market fears over the fate of the eurozone economies have eased somewhat since the European Central Bank extended liquidity to banks in December, but serious fiscal and structural problems continue to undermine investor confidence in Europe, China's biggest export market.
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