China plans to pay the EU debt

The Chinese delegation to the G20 on 15 October in Paris.

Sunday at the EU summit, China has been asked to participate in the European Financial Stability Fund (EFSF). A senior Chinese official had indicated informally last week that China intends to strengthen the Europe and markets. Beijing strives to strengthen the measures within the European Union so that the system does not explode. The Chinese authorities know that a collapse of the euro area would affect their own interests. For such a collapse in Europe would affect the overall system, including China.

“The Chinese hate the current situation. They hope to contribute to peace,” said one Western banker installed long-time China. Markets do not make a mistake and have welcomed the news, even if it is not yet confirmed.

The EFSF was expected to be funded by public money of the seventeen countries in the euro area and did not provide third-party financing. Experts are working on the issue, but the Chinese participation should not require a change in the Treaty. At present, China and possibly Japan are the only countries to have the capability of such an intervention. Japanese reserves are about 1 300 billion, but the country is weighed down by huge debt. China’s reserves are now the largest in the world with over 3500 billion dollars and a participation of 200 to 250 billion euros would puncture almost unnoticed in this treasure. But the Chinese may not need to do the same. “It’s the thought that counts, more than the amount,” says an expert in Brussels.

This intervention would be in line with what the Chinese have in recent months by buying sovereign debt of Italy and Spain and occasionally from Germany or France. Participation rates remain secret but seem quite low by estimates of Western experts.

In return, the Chinese expect a larger anchor of their interest in a Europe where they penetrate with difficulty. Investments held by the Chinese sovereign wealth fund in large European companies remain limited. Beijing has in mind of course the hope of obtaining the status of market economy in the WTO, for which it has pleaded for months, but the Europeans are far from unanimous on this point.