Amid Europe debt crisis, EU goes hat in hand to China
Although China, the world's largest creditor, has bought European bonds in the past, experts doubts that it will invest in a new investment vehicle meant to alleviate the Europe debt crisis.
Ng Han Guan/AP
China is unlikely to play the role of white knight, riding to the rescue of debt-ridden European nations, Chinese and foreign analysts here are warning, as a visiting European official seeks Beijingâ€™s financial help.
Klaus Regling, head of the Europeâ€™s bailout fund, the European Financial Stability Facility, met Chinese officials here on Friday to explore how ready they are to contribute to a new fund designed to relieve troubled European nationsâ€™ debt burdens.
Mr. Regling cautioned against high expectations. His visit, he said â€śdoes not mean that I expect any precise outcome of our talks. There are no negotiationsâ€¦ and there will be no conclusion during my visit.â€ť
China's vice finance minister was equally cautious, saying his country would wait for more details before committing to the fund.
"We need to wait for the technicalities to be clear and also to carry out serious studies before we can decide on investment," Zhu Guangyao told reporters.
China is the worldâ€™s biggest creditor, with foreign exchange reserves of around $3.2 trillion. Europe would like Beijing to use some of that money to buy European bonds. This weekâ€™s European summit proposed a new â€śspecial purpose investment vehicleâ€ť to buy distressed countriesâ€™ bonds, though the details of how it might work have yet to be decided.
â€śPolitically it would be very difficult for Chinaâ€ť to buy in heavily to such an investment vehicle, says Michael Pettis, who teaches finance at Peking University. â€śAfter all, this is a country that is many times poorer than the countries it is being asked to help.â€ť
At the same time, he points out, Chinaâ€™s sovereign wealth fund has come in for heavy criticism at home for earlier investments abroad that have performed badly. â€śChina is not keen to repeat that experience,â€ť Mr. Pettis adds.
Nor is the government here likely to offer large sums of money to bail out countries over whose future economic policy it has no influence, suggests Mr. Xie. â€śIf you bail someone out, you need to be sure that it is sustainable,â€ť he argues. â€śChina has no influence over Europe and no control over how its money would be used.â€ť
China has bought EFSF bonds in the past, Regling pointed out, and has proved â€śa good and loyal customer.â€ť Those bonds are AAA rated, he reminded reporters, and â€śChina must invest every month because its foreign exchange reserves go up every month. They are interested in solid, attractive, safe investment opportunities and I am happy that our bonds have been in this category in the past.â€ť
Chinese premier Wen Jiabao said last month China was willing to offer â€śa helping handâ€ť to Europe, but said pointedly that a reciprocal friendly gesture, such as offering China market economy status, and thus easing Chinese exports, would be appreciated.
â€śThe Chinese government is waiting for a response,â€ť says Ye Tan, a well known independent economic commentator. â€śIf Europe wants large-scale Chinese help, giving market economy status will be one of the requirements.â€ť
That is not something Regling is talking about. â€śI am not here to discuss any concessions,â€ť he told reporters. â€śThe Chinese authorities are regular buyers of EFSF bonds, they are good commercial products not linked to any other ideas.â€ť
This time, though, Beijing is likely to be cautious about getting involved in the special investment fund, says Ms. Ye, because â€śChina has to decide whether this fund can solve the crisis or not. If it looks as though it will need a lot more money again sometime in the future, that is risky.â€ť