China should demand the debt-stricken eurozone area guarantee investments, an editorial in the country’s top official paper said yesterday, arguing that Beijing must not enter single-handedly into any European debt bailout.
The call came in an editorial of the overseas edition of the People’s Daily, the official paper of the Chinese Communist Party. While such an editorial does not amount to a statement of government policy, it underscored the pressures on Beijing to win assurances for investments in the troubled eurozone.
“For China, under the conditions of globalization, supporting Europe out of its debt crisis would help global economic recovery and the stability of the international financial system, and ... Europe remains China’s biggest export market,” said the front-page editorial written by Li Xiangyang (李向陽), a foreign policy researcher at the Chinese Academy of Social Sciences, a state-run think tank in Beijing.
“However, we must clearly understand that there are systemic risks in investing in European bonds,” Li wrote.
“Confronted with the latent systemic risks in European debt, China must both play the role of a responsible major power, but must also make security a precondition for investing,” he said.
China’s pile of US$3.2 trillion in foreign exchange reserves is the biggest in the world and keeps growing thanks to trade surpluses and capital inflows.
Analysts estimate that China holds about a quarter of its foreign exchange in euro assets, and there are few other places for it to park investments of such a scale.
However, a chorus of voices in the past week has revealed anxieties in China about the security of those euro assets.
China remains willing to invest in Europe, but wants rich economies to show they are serious about tackling debt, Chinese Premier Wen Jiabao (溫家寶) said this week, sending the eurozone a mix of reassurance and demands.
China should refrain from buying large amounts of European bonds, said a Chinese central bank adviser, Li Daokui (李稻葵).
The southern European economies, such as Greece and Italy, which could turn to China to buy more of their debt cannot resort to printing money, inflation or currency devaluations to ease that debt, the People’s Daily editorial said.
“In that sense, the sovereign debt crisis is not a problem of these countries alone, but one of the entire euro zone, and defusing the debt crisis to a large degree rests on the political will of the euro zone countries,” it said.
China should not single-handedly offer any rescue steps for Europe, it said.
“First, we must cooperate with other creditors and investors, such as European banks, the International Monetary Fund, and other BRICS countries,” Li wrote in the editorial.
The BRICS emerging powers — Brazil, Russia, India, China and South Africa — are due to convene on the sidelines of meetings of the World Bank and the IMF later this month, opening a chance for discussion of the euro crisis.
China must also seek assurances from the eurozone as a whole for its investments, not just from individual recipient countries, Li wrote.
“The euro zone management mechanism and its member states are stake-holders in the European crisis, and they have a duty to offer outside rescuers certain forms of guarantees,” he wrote.
He added that debt-stricken European countries should also renew their vows to undertake fiscal reforms.
The editorial did not specify what guarantees China should seek.
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