BERLIN (Reuters) - Angela Merkel, buoyed by an EU summit that crowned her political ascendancy in Europe, will seek Beijing’s support for the ailing euro this week on a China tour showcasing the global reach of German firms and booming trade ties between the world’s top two exporters.
With most of Europe now signed up to a German-inspired pact for stricter budget discipline, Merkel wants China to contribute via the IMF to a financial firewall to stem contagion from the euro zone’s debt crisis, though she seems unlikely to succeed.
On a four-day trip rich in symbolism but unlikely to yield many actual deals, Merkel will bid farewell to China’s outgoing leaders with whom she built up an unlikely strategic partnership based on regular contact, despite differences over human rights and democracy and issues like intellectual property theft.
Like other non-European powers, China is deeply worried about the euro -- an official newspaper last year compared the crisis to the mediaeval Black Death -- but it first wants Europe itself to take more decisive measures to stop the rot.
“The Germans will hope for more investment from China (in European bonds) but I don’t think China’s policy will change... Loud voices in China would oppose China putting more money into European bonds,” said Zhu Feng, deputy director of the Centre for International and Strategic Studies at Peking University.
One leading lawmaker from Merkel’s conservatives, Klaus-Peter Flosbach, said China’s euro holdings give it an interest in a stable currency, “but I doubt China will build up its euro reserves without periphery euro states pursuing reforms.”
Echoing that caution, Zhang Yongjun, an economist at CCIEE, a top government think-tank in Beijing, told Reuters: “I think instead we should rely more on having Chinese companies invest more in Europe.”
Such investments would not necessarily come from China’s foreign exchange reserves, he added. Analysts estimate about a quarter of China’s record foreign currency reserves of more than $3 trillion are held in euro assets.
Despite Beijing’s reticence, some see scope for greater Chinese involvement in helping to rescue the euro zone.
“The Chinese have an interest in stable markets, for this reason they want a stable euro,” said Gudrun Wacker, a China expert at the German Institute for International and Security Affairs in Berlin.
“Also, if they want to diversify (their foreign currency holdings) away from U.S. dollars there are not many alternatives to the euro... If China goes through the International Monetary Fund it could also improve its own voting position there.”
Much of Europe, mired in recession, can only envy Germany’s success in China. Bilateral trade jumped nearly 40 percent in 2010 alone to 130 billion euros ($170 billion). Germany accounts for about a third of China’s total trade with the 27-nation EU.
“This year the People’s Republic will be the second most important market for our exports after France and ahead of the United States,” said Volker Treier, an economist at the German Chamber of Industry and Commerce.
Underscoring the central importance of trade, nearly two dozen heads of top German companies will fly with Merkel to Beijing on Wednesday and then on to Guangzhou, a southern powerhouse that is home to more than 400 German firms.
“Of course German companies want to invest in China. Just as we are open to Chinese businesses putting investments into the whole European Union, including Germany,” Merkel said in her weekly video-podcast.
Like many countries, Germany has a trade deficit with China but, unlike them, the gap is narrowing, helped by the success of luxury cars from BMW BMW.DE and other German automakers among the fast-growing ranks of wealthy Chinese with yuan to burn.
“All export-oriented German companies are focused on China, they know China will be important in driving their turnover and earnings for many years to come,” said Eberhard Sandschneider, head of research at the German Council on Foreign Relations.
The number of Chinese investors coming to Germany is still relatively low but is growing, said Sandschneider, with interest especially strong in smaller and medium-sized companies, known in German as the Mittelstand.
Only this week, sources in Hong Kong told Reuters Chinese group Sany Heavy Industry (600031.SS) had bought a privately owned German concrete pump maker, Putzmeister Holding, with a view to global expansion.
In some cases, Chinese companies have been able to pick up assets on the cheap because of Europe’s financial woes.
An opinion poll for Stern magazine suggested worry about the rise of China as a superpower is receding among ordinary Germans with 30 percent expressing fear, down 10 points from a year ago.
Merkel’s Chinese hosts will remind her of their long-standing campaigns for a free visa regime with the EU and for the 27-nation bloc to award China “free market economy” status, a move that would remove substantial trade restrictions.
Despite the upbeat mood over economic ties, Merkel said she would not shy away from criticising China’s human rights record.
“I will speak in China about my convictions and values in the same way as I do in Germany,” said Merkel, the daughter of a Protestant pastor who grew up in communist East Germany.
“I will make clear that human rights and the concept of the rule of law cannot be played off against each other,” she told the Welt newspaper in an interview published on Wednesday.
Topping the agenda of international issues will be Iran after the EU agreed to slap a ban on Tehran’s oil exports from July 1 over its nuclear programme.
A German government source said Merkel would urge Beijing to cut its own oil imports from Iran, a call sure to go unheeded. China is the world’s second largest oil consumer and has long opposed unilateral sanctions targeting Iran’s energy sector.
“I don’t expect either side to be persuaded by the other,” said Zhu. “Overall, China shares an interest in avoiding proliferation of nuclear weapons capability to Iran... But of course China does get a lot of oil from Iran.”
Merkel’s visit comes as some scholars are drawing parallels between the rapid economic rise and growing political clout of China and the emergence of a powerful, united but authoritarian Germany in an age of similar globalisation before World War One.
China, like Kaiser Wilhelm’s Germany, has sometimes alarmed some of its smaller neighbours with its assertive behaviour.
“China says it has learnt the lessons of history... They say they will not behave like Germany or Japan (in those times), that their rise will be peaceful,” said Wacker. “But the problem is that their rhetoric is not always matched by reality from the perspective of their neighbours.”
Additional reporting by Andreas Rinke and Matthias Sobolewski in Berlin, Kevin Yeo and Lucy Hornby in Beijing; Writing by Gareth Jones; editing by Tim Pearce