Trying to assuage concerns over growing Chinese investment in debt-stricken eurozone economies, Chinese Premier Wen Jiabao, speaking at a German-China business forum on Friday in the southern province of Guangdong, said that China neither had the ability nor the intention to “buy Europe”. China is “willing to cooperate with Europe to fight the current crisis. Some people say this means China wants to buy Europe”, Premier Jiabao said. German Chancellor Angela Merkel, who is on a three-day visit to China, also attended the forum along with representatives from the banking, energy, engineering, chemicals and electronics sectors.
There are growing concerns in Europe that in return for the recent investments made by Chinese companies and government-backed funds, European governments will have to offer political concessions to China. In the latest deal, China State Grid has acquired a 25 per cent stake in the national electricity grid of debt-stricken Portugal for USD 508.2 million. Analysts say the main reason behind the recent acquisitions by Chinese companies is to expand overseas by investing in good companies that are available cheap. The country’s sovereign wealth fund also wants to diversify away from US bonds.
European leaders have called for greater Chinese investment in a bailout fund to rescue debt-stricken countries. Although Wen said yesterday that China was looking at the option of getting more involved in bailout funds through the International Monetary Fund, it yet to make any concrete assurances. China has the world’s largest foreign exchange reserves.
Referring to the European Financial Stability Facility and the European Stability Mechanism, Wen said, “China is also considering increasing its participation in the solution of the European debt crisis through the channels of the EFSF and ESM.”
There is strong opinion within China regarding the prospect of using the country’s reserves to provide assistance to troubled European nations. A large number of Chinese think the massive foreign-exchange reserves are the result of their hard labor and question the need to provide aid to nations that have higher per-capita incomes and generous social benefits.
Even though China has approximately a quarter of its foreign currency reserves in euro assets, and has expressed its support for a stable euro, Beijing has so far been reluctant to make specific promises about rescue contributions.
For almost two years now, Europe has been asking Beijing to use some of the almost $3 trillion in foreign currency reserves to buy troubled European debt. But China, in return for this help, has been regularly demanding concessions like the dismantling of European Union barriers to low-price Chinese goods, which the Europeans find hard to accept.
