Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled that developed nations should cut deficits and create jobs rather than relying on China to bail out the world economy.
“Countries must first put their own houses in order,” Wen said today at the World Economic Forum in the Chinese city of Dalian. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
Wen reiterated his message in June that China can offer “a helping hand” to Europe through investing there. At the same time, his government would ensure the nation’s economic growth remained stable, he said today. Wen called on the European Union and the U.S. to open their markets in return.
“What he is basically saying is China wants to help, they want to invest, but we can’t help you take the proper measures to control the debt crisis, you’ve got to do that on your own,” said William Rhodes, a senior adviser to Citigroup Inc. who was at Wen’s speech.
Stocks dropped in Asia, while oil and the euro fell following Wen’s comments. The MSCI Asia Pacific Index gave up its early gain of as much as 0.3 percent to trade 1.8 percent lower at 12:05 p.m. in Hong Kong. Crude oil in New York was 1.4 percent lower at $88.91 a barrel, while 104.87 yen bought one euro, from 105.56 yen earlier today.
Greek Prime Minister George Papandreou will hold a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy today amid increasing speculation that Greece will default. Spain is scheduled to sell debt tomorrow, after demand fell at an auction by Italy yesterday.
A default by Greece would be a “doomsday” scenario, Rhee Chang Yong, chief economist of the Asian Development Bank, said in Hong Kong today. “That’s the responsibility of the European and advanced economies’ policy makers not to let this happen, because if this happens, there would be huge turmoil in the global financial market.”
Treasury Secretary Timothy F. Geithner will press EU finance ministers when he meets with them this week, a euro-area official said. The official spoke on condition of anonymity because preparations for the meeting in Wroclaw, Poland, on Sept. 16 and 17 are confidential. It will be the first time Geithner has attended a session of Europe’s Economic and Financial Affairs Council, or Ecofin.
The European crisis was “very, very damaging in the American economy last summer,” Geithner told Bloomberg Television on Sept. 9. “It’s very important to the world that Europeans do what they need to do so that the problems they’re facing don’t spread.”
Wen said he was confident that China would achieve “longer term, better quality” economic expansion, and that this would be the country’s contribution to sustainable global growth. The Chinese government would adopt policies to avoid volatility in its economy, he said.
In return, Wen called on the U.S. to maintain fiscal and financial stability and “ensure the interests of global investors.” China’s $3.2 trillion of foreign exchange reserves make it the biggest holder of U.S. Treasuries.
The U.S. needs to lift export restrictions and, together with the EU, open markets to investment by Chinese companies, Wen said.
Quid Pro Quo
“We have on many occasions expressed our readiness to extend a helping hand, and our readiness to increase our investment in Europe,” Wen said. At the same time “we believe they should recognize China’s full market economy status” before the 2016 deadline set by the World Trade Organization. “To show one’s sincerity on this issue a few years ahead of that time is the way a friend treats another friend,” he said.
Market economy status would help Chinese exporters defend themselves in investigations that they are selling goods at below cost in the EU. As part of its accession agreement to join the WTO in December 2001, China agreed to be recognized as a non-market economy for 15 years in anti-dumping probes.
“China is increasingly using these investments as a way to get some political influence,” said Jan Lambregts, global head of financial market research at Rabobank International in London. “If there is a quid pro quo for the Chinese, they would be interested.”
The Chinese government shouldn’t buy bonds issued by individual euro-area countries because their leaders and the European Central Bank are in disarray, said Yu Yongding, a former adviser to China’s central bank.
The nation is not a lender of last resort for “troubled countries,” Yu, who is based in Beijing, said in e-mailed comments today. “China has to wait until it can see a clearer road map by euro countries for solving sovereign-debt problems.”
Brazilian Finance Minister Guido Mantega said yesterday that officials from Russia, India, China and South Africa will discuss next week ways to help Europe overcome its debt crisis.
The European “countries are not poor,” said Rhodes, author of “Banker to the World: Leadership Lessons from the Front Lines of Global Finance.” “They have got to get their act together, just like we have to in the United States.”
Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said Sept. 12, adding that bonds weren’t the focus. Italy joins Spain, Greece and Portugal among borrowers that turned to China since the 2007 collapse in U.S. mortgage securities set off a crisis that widened to engulf euro-region sovereign debtors.
“A few months ago, China said it would buy Eurozone debt but then they bought really little of it at auctions,” Lambregts said. “They haven’t really been putting their money where their mouth is.”
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