— Updating 01:14 ET Story Throughout With Comments, Background
BEIJING (MNI) – Any expectations that this week would end with a
Chinese agreement to contribute to Europe’s latest bailout plan were
dashed by the government, which said it needs more details about the
leveraging of the European Financial Stability Facility (EFSF), and
the fund’s chief executive, who dismissed talk about multi-billion
dollar contributions from Beijing.
Klaus Regling and Zhu Guangyao did meet on Friday, but the Chinese
Vice-Minister of Finance told reporters that more details would be
needed about Europe’s plans to leverage the EFSF up to E1 trillion from
E440 billion before China would agree to participate.
In a briefing earlier in the day, Regling said he hadn’t seen a
Financial Times report stating that China could invest $50 billion to
$100 billion in the plan. But he said it was “far too early” for
estimates of contributions, insisting that he was in town simply because
it was “quite useful” to come to China to brief officials at the
conclusion of the European summit earlier in the week.
“It doesn’t mean we expect any precise outcome of these talks,” he
told a press conference here in the midst of his discussions. “These are
regular consultations … there will be no conclusion on this occasion
during the visit,” Regling said.
But his comments did suggest that China will be a likely
participant, chiming with Zhu’s comments as well as other voices close
to the government.
He cited China as a “good, loyal customer” of EFSF bonds since the
bailout fund’s creation and noted that the country is running sizeable
monthly current account surpluses that must be invested.
“Those surpluses have to go somewhere and EFSF bonds are a good
product and commercially interesting,” he said.
Regling also noted that Asian investors — including China —
accounted for 40% of EFSF bond purchases this year, even if he wouldn’t
be drawn on specific numbers or estimates regarding Beijing’s
participation in an enlarged fund.
“It is far too early to say what amounts are envisaged,” he said.
Regling similarly dismissed talk of China extracting concessions —
such as the granting of market economy status or a break on human rights
— in his meetings.
The EFSF is now talking with investors about the structure of the
leveraging and whether it will be via loss guarantees or the
establishment of a special purpose vehicle. Regling said International
Monetary Fund participation “could be discussed” but ruled out any
issuance of EFSF bonds denominated in yuan.
Despite Regling’s reticence, Zhao Xijun, a professor at Beijing’s
Renmin University and government advisor, told Market News International
earlier that China will likely sign up.
“China will participate in the rescue fund. However, we’ll need
further discussion on how we’re going to participate with the EU and
IMF,” he said.
Despite high profile pledges in the last six months from senior
leaders, including Premier Wen Jiabao, to buy distressed euro debt, the
promise of Beijing’s firepower wasn’t enough to stop the crisis from
deepening and Greek, Spanish, and Italian debt spreads from blowing out
further.
China appears no longer prepared to throw money at the European
problem, no questions asked.
“It would be too blind for China to just invest in any bonds or
rescue fund for EU member states,” said a source familiar with
discussions among the senior leadership.
Despite Beijing’s public pledges of support, only around 20% of its
$3.2 trillion foreign exchange reserves is thought to be
euro-denominated, and the vast majority of that is thought to be
invested in the safest debt.
Regling is also meeting with the People’s Bank of China officials
during his visit here.
beijing@marketnews.com
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