China's Hu heads to Europe amid bailout hopes

30th October 2011, Comments 0 comments

China's President Hu Jintao left Sunday for an official visit to Europe including a G20 summit, raising hopes the cash-rich country might make a firm commitment to the European bailout fund.

Hu will first visit Austria to sign several "framework" agreements, including in the areas of economics and trade, before heading to the G20 meeting, the official Xinhua news agency said.

The Group of 20 major economies will meet in the French city of Cannes on Thursday and Friday, just a week after European Union leaders reached a last-ditch deal to tackle its debt crisis.

Europe is seeking to expand the European Financial Stability Facility (EFSF) to one trillion euros ($1.4 trillion), possibly through a special purpose investment vehicle or the International Monetary Fund.

But China, holder of the world's largest foreign exchange reserves at $3.2 trillion, said Friday it wants more clarity before investing in the bailout fund after Klaus Regling, head of the EFSF, held talks in Beijing to try to win help.

China's Vice Foreign Minister Cui Tiankai said Friday that the G20 should focus on the sovereign debt crisis in "developed countries" and the growing pressure of global inflation.

He added members should make efforts to stabilise financial markets and restore investor confidence.

For its part, G20 partners will also be looking to China to stimulate domestic demand, diversify its export-led economic model and allow the yuan currency to appreciate more freely so as to slim down its massive trade surpluses.

Another Chinese official has played down hopes of a breakthrough at the G20 meeting. Vice Finance Minister Zhu Guangyao, also speaking Friday, said investment in the European bailout fund was not on the agenda.

Beijing fears the financial risk of a major investment, which could also spark a domestic backlash as the Chinese public asks why they should bail out wealthier nations.

Already, opposition to such a move is being expressed online on China's hugely popular weibos -- microblogging sites similar to Twitter -- and in state media.

Chinese state media has said Europe must take responsibility for the crisis and not rely on "good Samaritans" to save the continent from its fiscal woes.

"China will only participate in a global programme that is defensible to the Chinese people. So don't expect a 'bailout' or 'rescue' from China," China Macro Strategist for brokerage CLSA, Andy Rothman, told AFP.

China has been burned before on overseas investment. It bought stakes in investment bank Morgan Stanley and asset management firm Blackstone only to see values collapse in the 2008 global financial crisis.

"China was taken in. One bitten, twice shy," said independent economist Andy Xie, former chief economist for Morgan Stanley.

© 2011 AFP

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