Sarkozy links "fair" yuan to balanced global ties

By Tim Hepher and Emmanuel Jarry

XIAN, China (Reuters) - A fair exchange rate for the Chinese yuan is a critical component of balanced global ties, French President Nicolas Sarkozy told Xinhua news agency.

Sarkozy, who begins a three-day visit to China on Sunday, has been vocal in demanding that China let the yuan rise more swiftly to help cap the country's growing trade surplus with the European Union.

But his comments to Xinhua explicitly put the exchange rate issue in a broader diplomatic context.

"We must make progress in our dialogue on currency questions. I hope for harmonious and fair relations among the major currencies -- the euro, dollar, yuan and yen. This is a condition for balanced international relations," Sarkozy said.

French officials distributed the transcript of the interview to reporters who flew to Xian, the former Chinese capital, a day ahead of Sarkozy.

His comments raise the stakes of high-powered meetings in Beijing next week.

In addition to Sarkozy's talks, the EU and China are holding a regular summit and a trio of policy makers representing the 13 EU countries that use the euro is paying an unprecedented visit to press the case for a stronger yuan.

Jean-Claude Juncker, the chairman of the Eurogroup of finance ministers, who will lead the delegation, said last week that the yuan was now undervalued by 20 to 25 percent, handing China an unfair trade advantage.

The EU-China summit would be "fundamental" for making progress on currencies, Sarkozy told Xinhua. He also announced 150 million euros (108.2 million pounds) of French investment in clean technology in China, reflecting European concerns over the toll that its rapid industrialisation is taking on the environment.

While the Chinese currency has climbed 9 percent against the dollar since its landmark 2.1 percent revaluation in July 2005, it has fallen about 11 percent in total against the euro.

Sarkozy repeated his call for the Group of Eight industrial nations to be expanded to include Beijing so that China can shoulder more global responsibility commensurate with its economic clout as the world's fastest-growing major economy.

"China's growth and its emergence as a power provoke admiration but also raise questions," Sarkozy said.

"As its power expands, China will naturally want to assume its increasing responsibility," he told Xinhua.

BE FIRM ON IRAN

Sarkozy urged Beijing to be firm in an international stand-off over Iran's nuclear activities.