China's Wen heads to Europe worried by debt crisis
By
James Pomfret
HONG KONG | Thu Jun 23, 2011 10:03am BST
HONG KONG (Reuters) - Chinese Premier Wen Jiabao heads to debt-stricken Europe seeking to safeguard China's vast holdings of euro-denominated assets as Greece teeters on the brink of default and preserve trade growth with its largest trading partner.
A senior diplomat stressed ahead of the June 24-28 visit to Hungary, Britain and Germany that China's vital interests are at stake if Europe cannot resolve its debt crisis, given that an estimated quarter of its $3.05 trillion (1.90 trillion pounds) foreign reserves are in euro-denominated assets.
"Greece's problems are very serious so Wen Jiabao's visit can help illustrate China's confidence (in the region)," said Ding Zhijie, a professor with the University of International Business and Economics in Beijing.
"It can also help China better assess the current situation in Europe to finesse their policies and clarify their future role in Europe's debt crisis."
Keen to diversify its assets and the world's largest stockpile of foreign currency reserves away from the U.S. dollar, China is torn between an obligation to safeguard its euro-denominated assets through new investments and not wanting to saddle itself with excessive risk.
But Wang He, a researcher with the Institute of European Studies at top government think tank the Chinese Academy of Social Sciences, said it was important Europe did not put too many unrealistic hopes in what China could deliver.
"You can't expect China to be your saviour," Wang said. "We can help you, but you must help yourself by reforming."
Since euro zone debt worries first rippled through markets last year, China has repeatedly said it has confidence in the single-currency region and pledged to buy debt issued by some of its troubled member states.
Raffaello Pantucci, a Shanghai-based China programme associate at the European Council on Foreign Relations, said that while China could play a critical role in buying distressed euro debt, it was unlikely Wen would announce a "game-changing purchase" of debt Europeans might be looking for.
"The Chinese are quite pragmatic. At the end of the day, I don't think they are in the business of giving their money away," he told Reuters.
The markets too, may dismiss empty proclamations of support from Beijing without disclosure of specific investment amounts.
Greece has been struggling to avert a euro zone sovereign debt default that could destabilise the global financial system and pile further misery on the euro.
European leaders will try to convince Greeks and financial markets when they this week that they have a workable plan to help Athens avoid a debt default and return to financial stability.
It is now set to approve a new austerity package to secure emergency loans as part of a 110 billion euro EU/IMF aid package due in two weeks that hinges on a new five-year belt-tightening plan.
TRADE TIES
The 27-member EU bloc is now China's largest trading partner with bilateral trade worth nearly 400 billion euros (358 billion pounds). While Chinese exports jumped 14 percent to hit 282 billion euros last year, the debt crisis has begun to weigh.
"In the last few months China's exports have actually been falling sequentially ... mainly due to the European debt crisis and the Japanese earthquake crisis," said Andy Xie, an independent China economist.
In London, Wen will meet British Prime Minister David Cameron, the latest high level meeting between the two sides after Cameron led a business delegation to Beijing last year that yielded a rich seam of deals, as did a visit by Chinese vice premier Li Keqiang to London in January.
While Cameron and German Chancellor Angela Merkel were expected to raise China's human rights record with Wen, particularly given a clamp down on dissent following the unrest sweeping the Arab world, the focus of talks will be overwhelmingly economic.
The release this week of Chinese dissident artist Ai Weiwei will also remove an irritant in ties.
Britain wants to double trade with China by 2015 to some $100 billion, fitting with Britain's strategy of trying to do more business with the BRICS to help offset subdued domestic demand at a time of sharp spending cuts. It's also keen to court greater investment from China's sovereign wealth fund.
China, however, has warned Britain must do more to welcome Chinese firms including the likes of telecommunications giant Huawei whose inroads into Britain have been hampered by accusations of its shadowy military ties.
"This kind of noise is not helpful for Chinese businesses to operate in the UK," said China's ambassador in London, Liu Xiaoming. "We would like to see the U.K. market even more open."
