02/02/2012

China Considers Offering Aid in Europe’s Debt Crisis

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Prime Minister Wen Jiabao, left, with Chancellor Angela Merkel of Germany, who is on a three-day visit to China.By and

HONG KONG — Premier Wen Jiabao said Thursday that China would consider working with the International Monetary Fund to help shore up Europe’s finances. But he left unclear whether China was willing to drop conditions that so far have made its proposed help unappealing to European nations.

While Chinese leaders have pledged not to link political demands to financial investments, they have sought concessions, such as getting the European Union to relax trade strictures against low-cost Chinese goods. Mr. Wen’s comments came at a Beijing news conference after he met with Chancellor Angela Merkel of Germany on the first day of her three-day visit to China.

Mrs. Merkel is the first of several European leaders scheduled to visit China this month, as China’s huge holdings of foreign exchange reserves have begun to give it financial influence that could potentially rival Washington’s.

Mr. Wen said that Chinese officials were studying whether the country should be “involving itself more” in helping Europe solve its debt troubles by investing in the region’s two big rescue packages: the existing European Financial Stability Facility and the planned European Stability Mechanism. China’s contributions could be channeled through the I.M.F., he said.

Lending money to the I.M.F. to, in turn, relend to Europe would effectively transfer more of the risk of any European debt default to the I.M.F. China has previously made clear that it would need to buffer the risk of lending more money to Europe.

Russia in December embraced the lending approach now being mulled by China, but Moscow was willing to lend the I.M.F. only $20 billion — an amount of limited help as Europe tries to expand its bailout funds by hundreds of billions of dollars.

Britain has also said it would consider sending more money to the I.M.F. to help with Europe’s troubles — but only after the Europeans demonstrated they were finally taking bold steps to stem the contagion.

China had $3.18 trillion in foreign exchange reserves at the end of December, dwarfing the reserves of every other country and potentially giving it the financial firepower to make a significant contribution.

Read more at The New York Times

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Feb 2, 2012 3:01:58 PM | Current Affairs, Economy

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