Will Europe Rescue China?
All eyes will be on China at this week’s G-20 meeting in Cannes. The expectation—or at least the hope—is that Beijing will contribute to Europe’s bailout fund, the European Financial Stability Facility. The Greece-rescue plan announced on Thursday in Brussels calls for an increase in the size of the EFSF from 440 billion to a trillion euros.
At the press conference announcing the deal, French President Nicolas Sarkozy said that the EU would like support from Beijing, and he called his Chinese counterpart, Hu Jintao, to ask for help. EFSF chief executive officer Klaus Regling immediately flew to Beijing and held consultations with officials late last week.
In response to the overtures to China, President Hu praised Sarkozy and European leaders for showing “determination” but did not promise support for their plan. Then, Zhu Guangyao expressed Beijing’s reluctance after meeting with Regling. “We need to wait for the technicalities to be clear and also to carry out serious studies before we can decide on investment,” the finance vice-minister said.
Finally, Xinhua News Agency ran a commentary today explaining Beijing’s position. “Amid such an unprecedented crisis in Europe, China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise,” the official organ stated.
There are many reasons for Beijing not to support Europe. First, Thursday’s plan is obviously just another temporary fix. There were “comprehensive” and “final” plans announced this March and July, and it may be only months before European leaders will need to come up with still another one.
Second, the Europeans are not pledging their own resources. After all, they merely said that the EFSF would be “leveraged,” in other words, eurozone leaders will be looking for others to chip in 560 billion euros. They refused to commit their own cash or even issue sovereign guarantees.
Third, Europe does not need China’s money. The continent is capital-rich and a net exporter of capital. “The reason peripheral European governments cannot get financing is not because there is a lack of capital or liquidity,” explains Peking University’s Michael Pettis. “They don’t need Chinese capital. They need someone foolish enough to lend money to countries that probably won’t repay.”
Chinese leaders are undoubtedly looking for ways to avoid throwing good money after bad. Yet, directly or indirectly, they will end up “buying rubbish bonds” and committing funds to the EFSF.
Why? Because Europe is bailing out China as much as China is bailing out Europe. Maybe even more.