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China Daily Website

Hands still being held out for Chinese help

Updated: 2012-10-13 15:34
By Fu Jing ( China Daily)

European leaders' failure to act earlier has taken a serious toll on other regions of the world economy, including the higher growth areas, Chin says.

And it has taken Europe too long to acknowledge the depth of the problems, especially on the financial lending side (bad loans), and to devise a clear road map for collective burden-sharing, with a clear sense of how the plan will be funded.

"Hopefully, the ESM announcement is another step in such international governance innovation, even if it has been too slow in coming," Chin says.

Despite the warnings, China and the EU may begin new talks on help in boosting the ESM's lending capacity, although China has no imminent funding plan.

Those talks may begin when Chinese and European banking and financial leaders meet at the annual International Monetary Fund and World Bank conference in Tokyo this week.

Klaus Regling, managing director of the European Stability Mechanism, says he will "meet those (leaders) from Asia when I am in Japan soon".

The EU still needs steady support from major Asian creditors such as China and Japan, he says.

"I am confident that the relationship with traditional and good Asian customers will continue when ESM issues bonds."

At the China-EU summit last month the Chinese Premier Wen Jiabao said Beijing had offered substantial support for debt-ridden European countries through the IMF, the EFSF or European countries' sovereignty funds.

He promised that Beijing would commit more, based on previous efforts.

In recent days, Liao Liqiang, the Chinese ambassador to Belgium, has echoed the pledge, saying China would offer more financial support once the ESM came into effect.

But Regling has declined to put a figure on Asian countries' bond investments, and official data on China's total buying of European bonds is unavailable. However, some data show that Chinese and Japanese institutions have been big buyers.

Sylvain Plasschaert, advisory board member of the Brussels think tank, the European Institute for Asian Studies, says that with the ESM, Brussels has a chance to convince the market that it is moving in the right direction.

Moody's Investors Service has given the ESM a triple-A rating, which Plasschaert says is a positive response from the market.

"If the Chinese government is willing to buy ESM bonds, that would be helpful. China has tremendously big foreign exchange reserves, and the buying can help diversify."

However, European countries should not expect too much help from China which has invested a large part of its foreign reserves in the US dollar, Plasschaert says.

If China is now going to invest more in euro bonds, the ESM system will become much stronger and such an investment may be a good move because it will help China diversify the composition of its reserves in a mutually beneficial way, he says.

Chin also says it is in China's interest to support the eurozone option, given that the Chinese government would like to see diversification in the international monetary system, beyond an overwhelming dependency on the US dollar.

"In providing support to the ESM, China would also gain greater authority to encourage European countries to strengthen their fundamentals."

Liu Jia contributed to this story.

fujing@chinadaily.com.cn

 

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