BACKGROUND: China looking to help Europe via IMF

By Bill Smith Feb 25, 2012, 5:04 GMT

Beijing - China wants any new funds for the European Union debt crisis to be channeled mainly through the International Monetary Fund, an IMF official said before this weekend's meeting of finance ministers in Mexico City.

'In terms of addressing the European debt problem, the Chinese position has been quite clear from day one, which is that they will do it through the IMF and they will do it as long as other countries also contribute,' Murtaza Syed, the IMF's China representative, said in Beijing.

'Obviously if the IMF resources are to be bolstered, one of the main sources of that financing could be China because China has a lot of reserves,' Syed said.

European Union leaders were expected to call for a substantial increase in the funds available to the IMF during the meeting of ministers from the G20 group of the world's biggest economies.

G20 members remained divided, with the United States reluctant to fill the IMF's coffers until European nations first find more funds to help resolve the continent's sovereign debt crisis.

Zhou Xiaochuan, China's central bank governor, earlier this month said any expansion of Beijing's role in tackling the EU debt crisis would come via the IMF and the European Financial Stability Fund.

Zhou assured Brussels that China would 'not reduce the proportion of euro exposure' in its foreign exchange reserves, which total some 3.2 trillion dollars.

Premier Wen Jiabao also told EU leaders in mid-February that China was 'ready for a bigger part' in tackling the European debt crisis, but he made no specific commitment.

State media quoted Lou Jiwei, head of the sovereign fund China Investment Corporation, as saying China was reluctant to invest in European debt, and considered infrastructure and industry as better investment prospects.

Xing Hua, of the Beijing-based China Institute of International Studies, said China wanted to avoid risky investments and was likely to wait until the European Stability Mechanism replaced the European Financial Stability Facility as the EU's bailout fund in July.

'We hope first to see the EU countries show more confidence in the EFSF and ESM ... and guarantee their support for those two funds,' Xing told dpa.

The IMF hopes to more than double its financial war chest by raising an extra 600 billion dollars to help countries cope with the debt crisis. The organization currently has 386 billion dollars at its disposal.

Chinese and Japanese finance officials last week agreed to coordinate their response to the IMF's request for additional funding to help Europe, state media reported. Japanese media said Tokyo was considering offering a 50-billion-dollar loan to the IMF.

'There's a lot happening and I think it's just a matter now of getting countries to agree, getting this core set of countries to agree,' Syed said. 'I don't think any country wants to take the first step and to be the only one.'

He said Chinese leaders were cautious because of their 'domestic backdrop' of China's attempts to rebalance its economy and halt a slowdown in growth by expanding consumption and reducing reliance on exports.

'There are still a lot of poor people in China and explaining it to your domestic constituency is always difficult in any environment for a politician to say we are helping others while there are so many poor people in China,' Syed said.

'So the domestic messaging also has to be thought about and I think that's part of what is causing this seeming delay, or this long time, in agreeing what needs to be done,' he said.

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