Eurozone: China Refuses Bailout Investment

EFSF chief executive traveled to Beijing to court investors, but made no final deals

EFSF chief executive traveled to Beijing to court investors, but made no final deals

China has said that it will not commit to an investment in the European Financial Stability Fund (EFSF), the recently-expanded eurozone bailout fund, until Greece’s situation is more stable.

European leaders, who last week voted to boost the fund’s capacity to 1 trillion euros, were hoping that China would buy EFSF bonds to inject capital into the struggling eurozone markets.

Saving the union

The EFSF’s expansion to 1 trillion euros was part of a three-part plan to save the single-currency bloc from its continued debt crises.

In addition, European banks will be expected to recapitalise and expand assets while also taking a 50% loss on Greek government bonds and debt.

EU leaders hoped China, with its $3.2 trillion (£2 trillion) foreign exchange reserves, would help the EFSF bailout fund with large investments. Klaus Regling, chief executive of the EFSF, travelled to Beijing last week in order to persuade Chinese leaders to invest in bailout bonds.

However, Zhu Guangyao, deputy finance minister for China, has said that since the EFSF “has not established details of its investment options,” the country will not entertain the idea of investing.

Concerning Greece

While no deal was finalised during Regling’s Beijing trip, it was still thought that China’s authorities would agree to help the struggling eurozone, as the region is one of China’s biggest export markets. A crisis in Europe has and will continue to put a dent in the demand for Chinese goods, which is trouble for the export-led economy.

However, China has decided to approach with caution following the Greek government’s decision to hold a referendum on the latest bailout package.

Zhu stated that China did not expect such a referendum, and neither did the rest of EU leaders. The Chinese deputy finance minister said that he hoped that the period of uncertainty “would be contained,” but it is instead showing signs of becoming more volatile.

Greece’s decision to hold a referendum has also resulted in EU and International Monetary Fund leaders withholding the next instalment of the Greek rescue package until after the uncertainty is over.

Greek’s next scheduled bailout payment is set to be 8 billion euros.


Comments & Debate

  1. November 7, 2011 at 9:54 pm Julescal Commented:

    This is far worse than you think. China has just said ‘play our game’ while Europe disintegrates and America implodes. Mark my words.

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