China still holding back on EU cash commitment

By bne IntelliNews February 15, 2012

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China "is ready to get more deeply involved" in a bid to resolve Europe's debt crisis, Premier Wen Jiabao said on February 14 at a summit with EU leaders, but he held back once more from committing hard cash to the cause.

Whilst Europe has long discussed the need to get the cash-rich Brics and other emerging economies to help bail out struggling European countries, the likes of China have made it clear they're unlikely to offer more financing to the western markets without being given a bigger say over the global economy.

The EU is seeking the help of countries with high sovereign wealth reserves to raise the €500bn needed for the EFSF and ESM bail out funds. With the equivalent of around €2.4 trillion, China has the highest foreign exchange reserves in the world, with the likes of Russia also holding significant volumes of cash, but the pair is unwilling to put their hands in their pockets whilst Europe continues to ignore calls to allow such emerging giants a bigger say in institutions such as the IMF.

For its part, Europe is unwilling to hand over its privileges, and the US - which has consistently demanded that the EU sort its own problems out - would be loath to welcome more input from the east either.

However, the EU is also China's biggest trading partner with €560bn in goods swapped in 2011, and Beijing can ill afford to throw Brussels to the financial dogs. It also holds huge volumes of US debt, which would be hit by a severe slowdown in the west. Chinese officials warned last week that a recession in Europe could halve China's growth rates.

Meeting with European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso on February 14, Wen said: "China's willingness to support Europe to cope with sovereign debt problems is sincere and firm," reports Bloomberg. "China is ready to get more deeply involved in participating in solving the European debt issue."

"China is firm in supporting the EU side in dealing with the debt problems. We match our words with our actions," Wen continued, whilst blatantly not matching his words with any promise of cash. Instead he repeated remarks he made earlier in February that China is "considering" measures to help stabilize the European monetary union through the EFSF and ESM.

Wen claimed that Beijing is waiting to see Europe's response in terms of structural reform. "We expect those highly indebted countries to strengthen fiscal consolidation, cut deficits and reduce debt risks in light of their national conditions," he said. "We hope the EU will soon reach internal consensus, make the political decision and send to the international community a clearer and a stronger message of policy responses."

It's hard to imagine however that the Chinese - renowned as hardball negotiators - are not asking for something for themselves into the bargain given their strong - and likely justified - push in recent years for a bigger say to match their global financial muscle.

Meanwhile, continued failure to secure a contribution commitment was clearly a disappointment for the EU delegation. Van Rompuy told reporters that he welcomed Mr Wen's comments, reports the BBC, before sniffing that "it's up to China to make its own decision in order to contribute to the stability of the eurozone."

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