Will China invest in Europe's bailout fund?

Leaders of the European Union recently agreed to a bailout deal and certain reforms in Brussels, in order to hopefully stave off government defaults and a continent-wide economic crisis. Due to the deal’s terms, China may have an important part to play in Europe’s future.

Chinese President Hu Jintao is making an official visit to Europe starting on Sunday, in order to discuss Chinese commitment to Europe’s bailout fund.

President Hu’s European tour will include a trip to the G20 summit being held in Cannes this Thursday.

European leaders have agreed to increase the euro zone bailout fund, otherwise known as the European Financial Stability Facility (EFSF), to one trillion euros ($1.4 trillion).

However, the specifics of how this money will be raised still remain somewhat murky. Officials suggested IMF help, and a special purpose investment vehicle that would allow private investors and outsiders to contribute to the fund.

This is where China’s role comes into play.

According to European officials, the Chinese government had already expressed interest regarding investment in Europe’s bailout fund. Currently, any investment on the part of the Asian industrial power would greatly benefit Europe, as China has the largest foreign exchange reserves in the world, worth about $3.2 trillion.

President Hu’s visit will allow him to better examine and understand the situation in Europe, and thereby decide whether he approves of Chinese involvement in Europe’s attempt to contain its debt crisis.

The head of the EFSF, Klaus Regling, has flown to Beijing in the past in order to lobby China for financial investment in the fund.

However, despite many European leaders’ high hopes and previous claims that Chinese involvement is almost certain, many Chinese officials are reluctant to become involved in the euro zone bailout.

Vice Finance Minister Zhu Guangyao stated as recently as Friday, a day after the European deal was reached, that China has not planned for investment in the EU’s bailout fund.

Chinese involvement in Europe also faces heavy domestic opposition from the Chinese public, apparent in remarks made by many Chinese citizens online, and even by the Chinese media.

Though financial power has been shifting from West to East for years, many Chinese people still remain poor relative to European citizens; thus, they are opposed to the Chinese government investing money in order to save wealthier nations, while China has its own problems to contend with.

The state-controlled media in China has further stated that the debt crisis in Europe is the euro zone’s responsibility, so European leaders should find a way to fix it on their own.

Such resentment against assisting Europe means President Hu will be less likely to make a decision favorable to the EU, as he will want to avoid any type of public backlash within his own country.

More information about President Hu’s intentions and the likelihood of China’s investment in the EU bailout fund will probably be attained during the G20 summit this Thursday and Friday. If China decides not to help the EU, European leaders must find other ways of leveraging the bailout fund, and their alternative options at the moment seem quite vague and limited.

Image Source: Wikimedia Commons