If I have seen further it is by standing on the shoulders of giants.

Wednesday, September 14, 2011

World Must ’Get House in Order,’ Not Rely on China: Wen

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 Dalian, China. “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, and at the same time he said today his government would ensure the nation’s economic growth remained stable. Wen called on the European Union and the U.S. to open their markets in return.

“The Chinese have a big interest because of the size of the export market to Europe,” said William Rhodes, a senior adviser to Citigroup Inc. “But at the end of the day the Europeans have got to do it on their own. These countries are not poor. They have got to get their act together, just like we have to in the United States.”

The EU should also recognize China’s “full market economy status” before the 2016 deadline stipulated under World Trade Organization rules, he said. “To show one’s sincerity on this issue a few years ahead of time is how friends treat each other,” Wen said. The U.S. needs to lift export restrictions and open its market to investment by Chinese companies, he said.

“China’s economy can achieve longer term, better quality growth,” he said. “This will be our new contribution to strong, sustainable global growth.”

Quid Pro Quo

“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.

“China has to wait until it can see a clearer road map by euro countries for solving sovereign-debt problems,” Yu, who is based in Beijing, said in e-mailed comments today. The nation is not a lender of last resort for “troubled countries,” he added.

Bailout Target

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. Italy is struggling to avoid a collapse in investor confidence and German Chancellor Angela Merkel has warned that an “uncontrolled insolvency of Greece” would roil markets.

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. China’s status as the fastest-growing major economy and holder of the largest foreign-exchange reserves have made it a favored source of funding for politicians in troubled economies.

`Moment of Truth'

“As Europe nears its moment of truth, new sources of funding are not the answer for long-needed structural repair,” said Stephen Roach, non-executive chairman of Morgan Stanley Asia. “China needs to deepen its understanding of Euro-zone solvency risk before it redirects its external lending to this crisis-battered region.”

Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley 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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