China Says Helping Europe Would Be Difficult

HONG KONG — The Chinese government over the weekend sought to tamp down international expectations that Beijing might use its large financial reserves to help ease the European debt crisis.

The two government agencies that control the reserves face heavy restrictions on their use, Chinese government officials and economists said.

“The argument that China should rescue Europe does not stand, as reserves are not managed that way,” China’s vice minister for foreign affairs, Fu Ying, said in comments prominently reported by the state news media over the weekend.

Ms. Fu’s statements were significant because Chinese diplomats and political leaders had been less publicly hostile to the idea of helping Europe than Chinese economic policy makers, who had been strongly opposed.

Her comments conspicuously echoed some of the arguments made for several months by Chinese economic policy makers.

She said that the $3.2 trillion in bonds, bills and cash held by the central bank as official foreign reserves represented national savings that were not easily disbursed.

“Foreign reserves are not domestic income or money that can be disposed of by the premier or finance minister,” she added, according to Xinhua, the state-run news agency. “Foreign reserves are akin to savings, and their liquidity should be ensured.”

Lou Jiwei, chairman and chief executive of the China Investment Corporation, a $374 billion sovereign wealth fund that is managed independently of the foreign exchange reserves, has also tried to dispel speculation that it might buy a lot of European bonds.

He suggested a week ago that his fund might invest in roads, bridges and other infrastructure projects in Europe, part of a broader Chinese interest in fixed assets, rather than helping countries finance their budget deficits.

The Chinese central bank effectively borrowed the money from the Chinese public to buy the dollars, euros and other currencies in both funds. The central bank has required commercial banks to transfer one-fifth of their domestic deposits to it and has used that money to buy $1 billion or more a day of foreign currencies to slow the appreciation of the renminbi against the dollar.

The central bank has also pressed commercial banks to buy central bank bills that pay very low rates of interest and has used the proceeds to buy dollars. These methods of financing foreign exchange reserves have left the central bank with significant domestic liabilities in renminbi to balance against whatever return it can earn on foreign bonds, making economic policy makers particularly wary of taking risks with foreign exchange reserves.

The possibility that China might buy large amounts of European Union bonds has been raised repeatedly in the last year and a half by various officials from Greece, Italy and the European Union. These officials have sought to reassure financial markets that there will be demand for European government bonds, as a way to encourage investors to continue buying those bonds and thereby hold down the interest rates that European governments pay on their debt.

The Chinese government has mostly discouraged this speculation. But Prime Minister Wen Jiabao raised hopes in Europe in mid-September when he said that China might be prepared to lend a hand if Europe were to label China a “market economy,” a designation that would make it difficult for European companies to file antidumping cases against low-priced Chinese exports.

Mr. Wen did not offer details on how China might help. Ms. Fu’s remarks represented some of the strongest comments by a Chinese official since then to suggest that Beijing was in no hurry to lend a hand.

In remarks at a conference held at the Foreign Ministry on Friday and then reported by the state media over the weekend, Ms. Fu did not explicitly rule out buying bonds that might be issued as part of a European bailout. She did say that China continued to consider Europe an important economic partner.

But her caution suggested that China was not eager to increase its already sizable investment in the region; the foreign reserves include an estimated $1 trillion in euro-denominated assets, and experts on the Chinese central bank believe that much of it is invested in German government bonds.

Two people close to Chinese policy makers said on Sunday that China was particularly wary of buying any bonds issued in connection with a European bailout as long as there were clear differences within the European Union on the shape of a bailout. They insisted on anonymity because they were not authorized to discuss the subject publicly.

One of the two said China would lend large sums to Europe only if there were clear guarantees by the strongest European countries, particularly Germany, to take direct responsibility for the repayment of that debt.

But Germany has refused to accept that liability. If Germany did give its own repayment guarantee, there would be such heavy demand for the bonds from the Middle East and elsewhere that Chinese money might not even be needed, the person said.

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