Berlin, Beijing to talk euro

By Stephen Brown

BERLIN (Reuters) - Germany and China will discuss the euro and world currency system reforms during a visit by Premier Wen Jiabao, a German government source said, as Berlin said it would welcome more Chinese firms as long-term investors.

Fresh from reiterating China's commitment to the euro zone and the region's volatile debt market, Wen arrives in Berlin later on Monday for a visit that starts with dinner with Chancellor Angela Merkel.

Noting that China "has in the past diversified its currency holdings" including into the euro, the German source said the currency would be discussed by the two countries' finance ministries during the two-day visit.

"China has in the past diversified and also built up euro reserves. The issue of the development of the euro will play a role in talks," said the source, who asked not to be named.

China's intentions regarding holdings in the common European currency and investments in the sovereign debt of euro zone countries -- especially troubled peripheral states like Greece -- is the subject of huge speculation.

About a quarter of China's record foreign currency reserves of more than $3 trillion are estimated to be held in euros and China has reiterated its confidence in the euro since the debt crisis began, as well as pledging to buy euro zone debt.

But Chinese officials have also urged EU officials to take action to address debt problems and bolster faith in the euro.

European Central Bank policymaker Juergen Stark cautioned on Monday that he did not see China as a "rescuer" of the euro, nor did he believe the currency needed to be rescued.

"It's not a matter of China rescuing the euro. That is a completely misplaced interpretation of what might be discussed," Stark said. "If China decided to buy Greek government debt, that would be a decision for the Chinese leadership."

"I don't see China as the rescuer of the euro. I don't think the euro needs to be rescued," he told a conference in Berlin.


The German source said the issue of reforms to the world currency system, which France has put high on the agenda in its current presidency of the G8 leading economies, would also be on the agenda of talks with China.

"The important thing here is China's growing responsibility because of its large trading volume," the German source said.

On the issue of trade and investments, the source pointed out that while Germany's direct investments in China amount to about 20 billion euros to date, China has only invested about 600 million in Germany, meaning there was room for growth.

China is Germany's fifth biggest export market and the biggest importer of goods into Germany, with bilateral trade volume last year reaching 130 billion euros, up more than 34 percent on the previous year, the German official said.

But the official detected a "change of direction" in China's lagging investments in Germany, noting "strong Chinese interest in German companies." Wen's visit will include the signing of corporate deals in the auto, aerospace and chemical sectors.

German government ministers said their country has no reason to fear long-term Chinese investments but does need to ensure that German firms' intellectual property rights are upheld.

"Germany's economy is benefiting from China's strong growth rate ... and I see no reason why German firms shouldn't be able to hold their own against Chinese competitors," Economy Minister Philipp Roesler said in a German newspaper interview.

Foreign Minister Guido Westerwelle said it was crucial to ensure German firms going into closer cooperation with Chinese partners are able to protect their intellectual property rights.

China's German investments have to date focused on small and medium-sized firms, though media have speculated on a possible tie-up between Opel and China's Beijing Automotive Industry Holding Co (BAIC). The German carmaker already works closely with another Chinese firm, SAIC Motor Corp <600104.SS>, via parent General Motors Corp <GM.N>.

(Additional reporting by Annika Breidthardt, Andreas Rinke and John Stonestreet; Editing by John Stonestreet)