Sarkozy leans on China to let its currency rise

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BEIJING, Nov 25 (Reuters) French President Nicolas Sarkozy urged China today to let the yuan rise before currency imbalances become so great that the world cannot cope with them.

Sarkozy was speaking on the first day of a three-day visit to China overshadowed by mounting concern in Europe about the impact on exports from the surging euro, which hit a record high against the dollar last week.

''I hope to convince them (the Chinese leadership) that the global harmony to which China is particularly attached must include a fair balance between the major currencies -- the dollar, euro, yen and yuan,'' he told French business leaders.

The French leader, who earlier dined with President Hu Jintao, has been vocal in demanding that Beijing let the yuan rise more swiftly to help cap the country's billowing trade surplus with the European Union.

''China therefore has an important role to play in cooperation with the other players in order to prevent the imbalances accumulating to the point at which we no longer know how to get out of them,'' he said.

Finance Minister Christine Lagarde, who is travelling with Sarkozy, declined to say when that time would come.

''His point was that before we reach the point of creating damage, we need to sit down and talk,'' she said.

Sarkozy will overlap in Beijing with a high-powered European Union delegation, including European Central Bank President Jean-Claude Trichet, which is expected to tell Beijing that it needs to let the yuan climb to cool its economy and Damp down inflation.

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

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

Sarkozy said he would have the same message for China's leaders that he had for US President George W Bush earlier this month: ''As far as I am concerned, a great country should have a strong currency.'' BUSINESS DEALS Hu and Sarkozy will witness the signing on Monday of a string of contracts that could be worth 20 billion dollar.

China is due to order two modern nuclear power reactors from state-owned Areva, while Airbus hopes to clinch an order for as many as 150 jets.

Airbus is controlled by French and German interests through aerospace parent EADS, which ironically has been warning of the catastrophic impact on its business of the surging euro.

Industry officials say EADS hopes to firm up provisional Chinese orders for 20 of its A350 wide-body mid-sized jets as part of a total aircraft shopping list that could exceed 15 billion dollar.

China, which tends to share orders between Airbus and Boeing, needs thousands of aircraft in coming decades to keep pace with air travel in the world's fastest-growing major economy.

Sarkozy arrived in Beijing from Xian, the former imperial capital, where he viewed the Terracotta Army -- the 6,000 preserved figures of warriors and horses defending the necropolis of China's first emperor.

He was escorted into the earth trenches for an up-close tour, walking up and down the battle lines of lifesize baked-clay soldiers.

Sarkozy will hold talks with Prime Minister Wen Jiabao and take a glance at Beijing's 2008 Olympics preparations before stopping off in Shanghai on Tuesday on his way home to Paris.

By starting his journey in Xian in western China, however, Sarkozy appeared to send a reassuring diplomatic signal to his hosts that he is conscious of China's sense of history and its centuries-old culture.

The trip was also stage-managed to demonstrate a page has turned in French politics, beginning at the exact spot where Sarkozy's predecessor and rival, Jacques Chirac, left off at the end of his 2006 visit.

REUTERS JT KN2250

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