EU prods China on currency, seeks wealth fund rules

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WASHINGTON, Nov 8 (Reuters) Europe's top trade official said on Thursday that China's currency policy was hurting the European Union and United States, and called for new international ''ground rules'' to govern investments made by sovereign wealth funds like one China has created.

''We want an end to a managed currency in China that hurts us,'' European Union Trade Commissioner Peter Mandelson said in the prepared text of a speech highlighting some issues top U.S.

and EU officials will discuss on Friday during the first meeting of the new Transatlantic Economic Council.

Mandelson conceded that a stronger yuan would not, by itself, reverse the EU's and the United States' growing trade gaps with China. But it would help cool China's ''overheating industry sector, which is swollen with overcapacity and artificially cheap capital,'' he said.

''The number that preoccupies me these days is million.

Because that is how fast the EU-China trade deficit is growing every hour,'' Mandelson said.

The United States and the EU must recognize China's new global status as a major trading partner, but also insist that China honor commitments to open its markets, he said.

''China has been perhaps the single greatest beneficiary of a rules-based open trading system in the last decade. Now China must live by those same rules. She cannot expect special consideration,'' Mandelson said. ''We want China to reciprocate the market access on which its growth is built.'' China has used proceeds from its massive trade surplus with the West to create China Investment Corp., a 0 billion sovereign wealth fund to invest around the world.

U.S. and international financial authorities have voiced concerned with the lack of transparency in the government-controlled funds and don't want the funds to be used for political leverage.

Mandelson said it would be ''a fundamental mistake'' to encourage the perception that foreign investment in the U.S.

and EU economies is a bad thing, even when the shareholders are foreign governments.

However, it is reasonable to expect oversight of sovereign investments ''in the genuinely strategic parts of our economies'' and there should be full disclosure of asset ownership by state funds, Mandelson said.

''What we need is a set of principles agreed internationally -- a sort of code of conduct for investors and recipients of investment -- that will establish the ground rules for the global investment of sovereign wealth,'' he said.

REUTERS NY KP2251

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