FINANCIAL SUPPORT:CHINA RESTATED its hopes that Europe would find its own way out of the temporary difficulties it currently faces as the political and economic crisis in Italy ignited Beijing's worst fears of a split in the euro zone.
Foreign ministry spokesman Hong Lei said China hoped Europe, China’s biggest trading partner, would stabilise financial markets and push for economic recovery and growth.
China has repeatedly voiced confidence in the euro zone, but has been reluctant to reveal, or even confirm, measures it would take to support Europe.
Concerns in the world’s second biggest economy come as borrowing costs for Italy have soared to unsustainable levels as prime minister Silvio Berlusconi confirmed he would resign. The escalating crisis prompted European Commission president José Manuel Barroso to issue a stern warning about the dangers of splitting the euro zone.
In the two years of the debt crisis, China and its various state institutions have been trying to minimise their exposure to the euro zone because of fears of default by Greece or another peripheral European country.
There is considerable unease among ordinary people in China, still a developing economy, over why Beijing should be helping to bail out a rich economic bloc that has some of the world’s wealthiest economies, including Germany and France.
China certainly has cash to spend. With a war chest of €2.35 trillion, it has the biggest foreign exchange reserves in the world and is keen for vehicles to invest its funds in, but is likely to strike a hard bargain before investing in the European Financial Stability Facility.
Facility chief Klaus Regling travelled to Beijing last week for talks about a possible contribution, but China has been coy. Its euro bond holdings are believed to be focused on Germany and France, and much smaller than its holdings of US debt. China is believed to have bought Irish sovereign debt, but the amount is unknown.
About a quarter of China’s foreign exchange reserves are held in euro, and 70 per cent of them are meanwhile held in dollars.
China is likely to want something in return for helping out Europe. There are ongoing talks to give China a greater role in global economic governance to reflect its growing power. Discussions include proposals to include the renminbi in the basket that forms the Special Drawing Right – an artificial IMF currency. China also wants the EU to give China full market economy status.
The EU and US have long complained about China’s restrictions on foreign companies that include obstructing access to its markets in violation of free-trade pledges under the World Trade Organisation, and pushing foreign companies out of promising sectors such as clean energy.