Monday, October 24, 2011China’s foreign minister says the euro-zone nations should act quickly to prevent the ongoing debt crisis spread further. The European leaders are scheduled to meet tomorrow amid existing splits in opinion.
BEIJING - China’s foreign minister says the euro-zone nations should act quickly to prevent the ongoing debt crisis spread further. The European leaders are scheduled to meet tomorrow amid existing splits in opinion.
A Chinese model is seen posing in front of a car presented at a recent automotive fair in Beijing. China sold 614,000 cars abroad in the first nine months of 2011, according to the figures released by the government. AFP photo.
China urged the European Union yesterday to deal with its debt crisis as soon as possible and prevent contagion from spreading, as the country’s number four-ranked leader arrived for a visit of the continent, including Greece.
“We hope that the EU countries concerned will reach a comprehensive settlement plan as soon as possible and adopt effective measures to ease the euro debt crisis and prevent the crisis from spreading further,” Foreign Ministry spokeswoman Jiang Yu told reporters.
“China is confident that the EU has the ability and wisdom to overcome these straits. We have always provided what help we can to the countries concerned via bilateral and multilateral channels.”
At a summit on Oct. 23, European Union leaders neared agreement on bank recapitalization and discussed how to leverage up the 440 billion euro ($600 billion) European Financial Stability Facility (EFSF) crisis fund to stave off bond market contagion.
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Sharp differences remain, however, over the size of losses private holders of Greek government bonds will have to accept and how to scale up the EFSF without EU governments contributing more capital themselves. Final decisions were deferred until a second summit tomorrow.
The mostly likely method for leveraging the eurozone’s bailout fund involves using it to provide bond insurance while combining its firepower with a special purpose vehicle (SPV) drawing in cash from China or Brazil, EU officials said.
Jiang declined to comment on that idea, saying her ministry was not the appropriate agency to answer such a question.
‘Supporting efforts’
“In principle, we support the efforts of the EU countries concerned in addressing this crisis,” she said.
Quite why China would choose to fund an SPV scheme that guaranteed to take losses in the event of a debt restructuring or default in the euro zone left some investment bank economists puzzled.
China already has an estimated 600 billion euro exposure to euro zone debt, courtesy of the 25 percent or so of its $3.2 trillion of foreign exchange reserves that analysts believe to be invested in euro-denominated assets.
“As for whether China will continue to buy European debt really depends on what types of debt are on offer – for countries that have been hit hard by the debt crisis, the risk is probably too high,” said He Fan, an economist at the Chinese Academy of Social Sciences, a top government think-tank.
“But we could do it under a multi-lateral framework; for example, we lend money to the IMF and let the IMF buy European debt. Bonds linked to the EFSF are safe but probably we haven’t bought much because their yields are too low.”
However a substantial investment in a new SPV, even via an entity backed by the International Monetary Fund, appears to some analysts an expensive way of insuring that exposure.
Tens of billions of euros would be required to give the EFSF the 1 trillion euro-plus firepower that economists say is needed at a minimum to safeguard the euro zone financial system.
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