THE HEAD of Europe’s bailout fund, Klaus Regling, has said he does not expect to reach a conclusive investment deal with China during a trip to Beijing, a point underscored by a senior Chinese official who cautioned any decision to buy would inevitably take time.
Some analysts say China has far more upside than downside in providing support for Europe, not least in protecting its global trade, but it may strike a hard bargain to part with some of its huge foreign exchange reserves.
Vice finance minister Zhu Guangyao told reporters in Beijing that China was waiting for details on the new investment options for the rescue fund, the European Financial Stability Facility (EFSF), before deciding on further purchases.
“This is not investment in EFSF itself, but in its new forms of investment as guarantor or participant,” he said. “So of course we have to wait until it’s clearly fully prepared technically and only after conscientious discussion will we decide about this investment.”
Mr Regling was in China just a day after euro zone leaders struck a last-minute deal to boost the firepower of its rescue fund, recapitalise banks and reduce the debt burden on struggling Greece.
“We all know China has a particular need to invest surpluses,” Mr Regling said at a news conference, referring to the country’s foreign exchange reserves of $3.2 trillion (€23 trillion) – the world’s biggest stockpile. Analysts estimate a quarter of the reserves are euro-denominated assets.
Some Chinese intellectuals say that now is the time for Beijing to negotiate hard, securing access to, control over or even ownership of some of Europe’s best brand names, companies and intellectual property in return for fresh funds.
“Europe has many famous brands, intellectual property and many high-quality corporate assets. Why should we worry that we cannot get enough returns?” Ding Yifan, an economist at Development Research Centre, a cabinet think-tank, said.
It was not clear that Friday’s visit would yield any solid additional commitments from China – already a regular buyer of bonds issued by the EFSF – to help bail out Europe.
“We think this trip is about helping China understand better the new funding channels of the EFSF,” said Chi Sun, an economist with Nomura in Hong Kong.
Chinese officials have welcomed Europe’s debt deal but added that the purchase of EFSF bonds was not on the agenda for next week’s G20 meeting in Cannes.
European leaders are now under pressure to finalise the details of their plan to slash Greece’s debt burden and strengthen efforts to revive the euro zone.
French finance minister François Baroin said investment by China would be a “gesture of confidence”.
Mr Regling was due to meet officials from China’s central bank and finance ministry yesterday. He said he was also in contact with sovereign funds globally.
New instruments were being designed and models tested to scale up the fund, Mr Regling said, adding that he wanted to hear how the fund could best structure investments to secure capital. – (Reuters)
