Reuters/Beijing
China urged the European Union yesterday to deal with its debt crisis as soon as possible and prevent contagion from spreading, as the country’s number four-ranked leader arrived for a visit of the continent, including Greece.“We hope that the EU countries concerned will reach a comprehensive settlement plan as soon as possible and adopt effective measures to ease the euro debt crisis and prevent the crisis from spreading further,” Foreign Ministry spokeswoman Jiang Yu told reporters.“China is confident that the EU has the ability and wisdom to overcome these straits. We have always provided what help we can to the countries concerned via bilateral and multilateral channels.”The official Xinhua news agency, in a commentary, urged Europe to get its act together.“It’s time for European leaders to refrain from calculating and paltering and show their wisdom, determination and drive to step out of the crisis-cast shadows,” it said. “Europe has missed some of the opportunities to defuse the crisis, and small steps over the past two years have proved impotent.”At a summit on Sunday, European Union leaders neared agreement on bank re-capitalisation and discussed how to leverage up the €440bn ($600bn) European Financial Stability Facility crisis fund to stave off bond market contagion.Sharp differences remain, however, over the size of losses private holders of Greek government bonds will have to accept and how to scale up the EFSF without EU governments contributing more capital themselves. Final decisions were deferred until a second summit on Wednesday.The mostly likely method for leveraging the eurozone’s bailout fund involves using it to provide bond insurance while combining its firepower with a special purpose vehicle (SPV) drawing in cash from China or Brazil, EU officials said.Jiang declined to comment on that idea, saying her ministry was not the appropriate agency to answer such a question.“In principle, we support the efforts of the EU countries concerned in addressing this crisis,” she said.Quite why China would choose to fund an SPV scheme that guaranteed to take losses in the event of a debt restructuring or default in the eurozone left some investment bank economists puzzled.China already has an estimated €600bn exposure to eurozone debt, courtesy of the 25% or so of its $3.2tn of foreign exchange reserves that analysts believe to be invested in euro-denominated assets.“As for whether China will continue to buy European debt really depends on what types of debt are on offer - for countries that have been hit hard by the debt crisis, the risk is probably too high,” said He Fan, an economist at the Chinese Academy of Social Sciences, a top government think-tank.“But we could do it under a multi-lateral framework; for example, we lend money to the IMF and let the IMF buy European debt. Bonds linked to the EFSF are safe but probably we haven’t bought much because their yields are too low.”However a substantial investment in a new SPV, even via an entity backed by the International Monetary Fund, appears to some analysts an expensive way of insuring that exposure.Tens of billions of euros would be required to give the EFSF the €1tn-plus firepower that economists say is needed at a minimum to safeguard the euro zone financial system.Meanwhile, there were precious few details emerging from Europe as to how any SPV might be structured.Chinese Premier Wen Jiabao urged Europe on Friday to stop its debt crisis from spreading across the bloc, warning that fundamental reforms were needed to staunch the eurozone’s troubles, in comments made after the two sides postponed an annual summit.Jia Qinglin, who heads a largely ceremonial advisory body to China’s parliament and is the Communist Party’s fourth-ranked leader, will repeat offers of support for and confidence in Europe during a visit this week that also includes heavily indebted Greece, Xinhua said.Jia will “reiterate China’s confidence in Europe’s ability to cure the current financial malaise as well as Beijing’s willingness to assist the debt-ridden continent in grappling with the challenge”, Xinhua said in a separate commentary.Jia will also go to the Netherlands and Germany.China’s relative lack of options on where to store its vast reserve of foreign exchange wealth give it strong reasons to press Europe to surmount divisions, contain the debt crisis and thereby protect Beijing’s stake in its biggest trade partner.The euro bloc’s crisis has already taken a toll on Chinese exports, which grew at their slowest pace in seven months in September. Exports were a net drag on China’s economic growth in the first nine months of this year.