German Chancellor Angela Merkel says a bid from her country to build Australia's next generation of submarines will support Australian jobs.
Dr Merkel and Prime Minister Malcolm Turnbull discussed defence procurement and cooperation in Berlin on Friday, where they also agreed to annual defence and foreign minister talks.
ThyssenKrupp Marine Systems has put in a bid to win the $A20 billion contract against rivals from France and Japan.
"We believe our company can offer good quality and I think that is something that should speak for itself. This is what the bidding procedure is about," Dr Merkel said.
"We believe our offer is attractive as regards the ability to produce in Australia."
The German chancellor said the process would enable a fair competition.
"I want to be clear the German government supports the German offer which has been submitted by private business."
Mr Turnbull said the defence industry was a good fit with his innovation agenda.
The pair also discussed military vehicles.
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