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China Aid to Europe likely through IMF

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China Aid to Europe likely through IMF   Empty China Aid to Europe likely through IMF

Post by lexie Thu Feb 23, 2012 9:23 am

Updated: 2012-02-23 09:05

China Aid to Europe likely through IMF

BEIJING - China will help Europe through the International Monetary Fund as long as other countries also make contributions toward the same end, a senior IMF official said in Beijing on Wednesday.

A float carries statues representing global rating agencies. Tagged as "Moody's", "Fitch" and "Poors", they aim slingshots at a euro sign before the start of the Rose Monday street carnival in Mainz, Germany. Premier Wen Jiabao said last week that China would continue to invest in euro debt in line with the principles of security, liquidity and value preservation. [Photo/China Daily]

"The Chinese have been very clear that they want to help, but they want to help through the IMF and they want to be seen to be helping if other countries also step up ..." Murtaza Syed, the IMF resident representative in Beijing, was quoted by Bloomberg as saying. "That's a pretty sensible approach.

"There is a lot going on behind the scenes. There's a lot of negotiations happening."

On Sunday, China and Japan agreed to coordinate their response to any request the IMF might make for additional money to help combat the debt crisis in the eurozone, Jun Azumi, Japanese finance minister, said after speaking with his Chinese counterpart, Xie Xuren, and Vice-Premier Wang Qishan.

Premier Wen Jiabao said last week that China would continue to invest in euro debt, a plan that falls in line with the principles of security, liquidity and value preservation.

He said the second-largest economy in the world will use the IMF, the European Financial Stability Facility and the future European Stability Mechanism as the means of offering aid in the debt crises.

Syed said the $3.2 trillion China has in foreign exchange reserves will enable it to bail out European countries mired in debt troubles.

"China has the kind of space that we would need to make a meaningful contribution."

Europe's debt crisis is expected to be the chief subject on the agenda of the G20 meeting that will be held this weekend in Mexico. Even so, it is highly unlikely that the G20 will reach a concrete agreement on IMF assistance this month, Reuters cited one official from the bloc as saying without naming him.

Wang Tao, chief economist with the financial services firm UBS AG in China, said the eurozone will probably enter into a "formal" recession in the first quarter because of the imposition of austerity measures and a reduction in credit.

"But the confidence of manufacturers and consumers is recovering after the European Central Bank injected liquidity and stabilized financial markets ... in December."

She said the euro will be shored up in the short term, but will continue to be weak in the long run since policymakers are still likely to reduce interest rates in the future.

While the value of the euro tumbled, that of the Chinese yuan increased as the government continued to hold ambitions of making it an international currency. The expectation of further appreciation, though, is not as strong as it used to be.

Syed said the yuan has appreciated greatly in the last six to eight months and the country's current account has come down very sharply as a percentage of its GDP.

"If that happens for another two or three years, once the global economy recovers and China's current account is still in the region of 3 to 4 percent of GDP, it becomes much harder to argue that the exchange rate is substantially undervalued."

He said having a market-oriented domestic financial system is essential if China is going to promote the use of the yuan as a global currency. The capital account needs to be freed up more.

At some time, yuan appreciation will cease being the primary motive people have for possessing the currency, he said. "People will no longer want to hold onto the yuan unless they can use it to invest in assets on the mainland."

And China should make sure the domestic financial system can absorb increasing capital flows without contributing to an asset bubble or a credit splurge, Syed added.





http://usa.chinadaily.com.cn/business/2012-02/23/content_14673703.htm


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