China needs to see Europe debt plan: Experts

Updated: 2011-10-01 08:12

By Zhang Chunyan (China Daily)

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London - China cannot solve Europe's debt crisis by buying high risk bonds without seeing a clear resolution plan, the chairman of the board of supervisors at China Investment Corporation said.

"We in China are concerned about the unraveling of the situation in the (eurozone) region," Jin Liqun, who is also the chairman of China's sovereign wealth fund, said at The Economist's forum on High Growth Markets in London on Thursday.

As the eurozone sovereign debt crisis escalates, there are some people calling on major emerging countries to use their huge foreign-exchange reserves to purchase the debt of crisis-ravaged countries like Greece, Italy and Spain.

China, with its $3.2 trillion in foreign-exchange reserves, is particularly seen as a potential white knight to get Europe out of the "difficult position".

"China cannot (give support) without due diligence. China cannot be expected to buy high risk eurozone (instruments) without a clear picture of debt workout programs," Jin said.

"China cannot be expected to bail out the eurozone unless it opens hurdles to China and other high growth markets."

Jin said he was optimistic about Europe's future.

"EU countries still enjoy a competitive advantage in a number of areas such as science and technology, manufacturing and luxury products ... Over time, economies in the EU will be out of woods. We're optimistic for the outlook."

Jin said keeping investment and trade flow open is essential for Europe, and it should recognize China's market economy status.

Jin's words were echoed by some European economists. Stephen Joske, an economist with The Economist Intelligence Unit, told China Daily that China remains keen for a quick return to economic stability in Europe but its real power is limited.

"China cannot be expected to take on vastly increased major risks of direct exposure to European sovereign debt," Joske said.

China has helped Europe within its capacity. China bought the debt securities of European countries and expressed in public its confidence about the euro and the European economy.

China is still enlarging its trade and investment with Europe to make a contribution to solving the unemployment issue and promoting the economic growth of Europe.

According to official figures, in the first half of 2011, China's non-financial sectors direct investment in the EU was $859 million, up about 99.3 percent compared to 2010.

Asked about China's financial sector, Jin, the former vice-finance minister of China, said that overall China's financial sector was "in good shape".

But Jin acknowledged that real estate and local government financing vehicles (LGFV) were among the risks in the otherwise healthy financial sector.

LGFVs are companies set up by provincial and city governments to pay for local real estate and infrastructure projects. "We are aware of risks which have to be taken care of. One of them is real estate and the other is local government financing vehicles," he said.