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 that were prominently reported by the state news media over the weekend.
Ms. Fu’s comments were significant because Chinese diplomats and political leaders have been less hostile in public to the idea of helping Europe than Chinese economic policy makers, who have been strongly opposed.
In her comments, Ms. Fu conspicuously echoed some of the arguments that Chinese economic policy makers have been making for months. She noted that the $3.2 trillion in bonds, bills and cash held by the central bank as official foreign reserves represent 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, the chairman and chief executive of China Investment Corp., a $374 billion sovereign wealth fund that is managed independently of the foreign exchange reserves, has also tried to dampen speculation that the investment corporation 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 as opposed to 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 that are in both funds. The central bank has forced commercial banks to transfer a fifth of their domestic deposits to it and has used that money to buy $1 billion or more a day of foreign currencies, so as 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 in particular wary of taking risks with foreign exchange reserves.
The possibility that China might buy large sums of European Union bonds has been floated repeatedly in the last year and a half by various officials from Greece, Italy and the European Union itself. 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 anti-dumping cases against low-priced Chinese exports.
Mr. Wen did not offer details at the time 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 view Europe as 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 economic policy makers said Sunday that China was particularly wary of making buying any bonds issued in connection with a European bailout as long as there were clear differences within the European Union over the shape of a bailout. Both people insisted on anonymity because they were not authorized to discuss the subject publicly.
One of the two said that China would lend large sums to Europe only if there were clear guarantees by the financially strongest European countries, particularly Germany, to take direct, individual responsibility for the repayment of that debt.
But Germany has refused to accept that liability so far. 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.
Article source: http://www.nytimes.com/2011/12/05/business/global/china-signals-reluctance-to-rescue-eu.html?partner=rss&emc=rss