Beijing aware of unpopularity the move can fetch it amid inflation, poverty.
China is treading cautiously on the issue of investing in the euro zone bailout fund —the European Financial Stability Facility, or EFSF. The giant East Asian country’s President Hu Jintao, who is now in Cannes attending the G20 summit, has stuck to Beijing’s official line. Thus, he reiterated support for the euro and belief in the wisdom of European leaders, but remained mum on whether the nation might play a concrete role in resolving the crisis.
The EU leaders had struck a deal last week, following which Europe had turned cap in hand to Beijing for investment in a special investment vehicle that would be leveraged to boost the EFSF firepower to some euro 1 trillion.
But the Greek googly bowled earlier this week has further complicated an already convoluted situation. A top Chinese finance official has said Beijing would not invest in Europe until Athens lent greater clarity on the situation.
On Monday, Greek Prime Minister George Papandreou announced a surprise decision: to put his country’s latest bailout package to a referendum. This was one move China had not expected, according to that country’s finance minister Zhu Guangyao.
As of now, Beijing is sitting upon a mountainous foreign exchange reserve of $3.2-trillion. But Zhu said China could not talk about the issue of investing until it got more details about the investment options in the EFSF.
Last week, EFSF chief executive Klaus Regling travelled to Beijing in a bid to persuade the country’s leaders to invest in the fund. French President Nicolas Sarkozy called his Chinese counterpart to solicit financing as well.
Though no deal was finalised, it was thought the Chinese authorities may agree to help Europe’s fiscally troubled economies — not the least because the region is one of the biggest markets for Chinese exports and that a crisis would dent demand for Chinese goods and hurt its export-dependent economy.
However, Beijing is also aware that any move to bail out Europe might be unpopular back home. For, it is facing political uncertainty, with a new government set to take over the country’s reins next year. Online forums, commonly used to gauge public opinion in the Communist-ruled state, are abuzz with criticism of the idea of Beijing spending money on rescuing European countries when the country is mired in high inflation that has further impoverished its millions of ordinary citizens.
If China does eventually agree to invest in the EFSF, it is likely to only do so in exchange for guarantees on its investment. There could also be other concessions, like greater voting rights within the IMF, the granting to it of market economy status or the lifting of Europe’s arms embargo against it.
