Europe bailout fund chief visits Beijing

European leaders looking for cash to fund multibillion-dollar debt resolution plan

Published October 28, 2011 6:00AM (EDT)

BEIJING (AP) — The chief of Europe's bailout fund visited Beijing on Friday to discuss possible terms for cash-rich China and other global investors to help finance a multibillion-dollar plan to resolve the continent's debt crisis.

Klaus Regling arrived a day after European leaders approved the plan and said it was too early to negotiate with China as a potential investor in the expansion of the European Financial Stability Facility. He said the fund will spend the next few months talking to governments and others about how the fund might be structured so the bonds it sells to raise money will be an attractive investment.

Contributing to Europe's bailout could help Beijing achieve its goal of a leading role in managing global finances. But a possible Chinese role in Europe, and suggestions that Beijing might want political concessions, has caused unease among some Europeans.

Leaders of the 17 nations that use the euro agreed this week to expand the 440 billion euro ($624 billion) bailout fund in hopes of resolving the 2-year-old crisis that threatens to push developed economies back into recession.

The increase would come from having the fund insure debt issued by wobbly countries such as Italy and Spain, preventing them from being dragged into the crisis. European leaders also want to raise money from China, with $3.2 trillion in foreign reserves, and other global investors to increase the fund's financial arsenal.

Regling declined to say how much he hoped Beijing might contribute but said China has a "particular need" for safe foreign assets to invest its multibillion-dollar monthly trade surpluses. He noted that his fund's bonds, backed by the 17 euro area governments, have the strongest AAA credit rating.

Chinese leaders have expressed sympathy and promised to support Europe, their biggest export market. But so far, they have said only that they will help by continuing business as usual, buying Europe's goods and stockpiling part of China's trade surplus in the safest European government bonds.

Regling said China and other Asian investors have bought 40 percent of the bonds issued by the EFSF since it was created in May 2010 but he refused to say how much Beijing has purchased or give other details. The EFSF has raised 8 billion euros from two rounds of bond sales and plans four more this year, according to its website.

European leaders want to raise money for two schemes to expand the fund's financial firepower. One would allow the EFSF to act as an insurer for bonds sold by weaker governments such as Spain or Italy, allowing them to pay lower interest rates by making the bonds more attractive to investors. The second would be a fund, called a special purpose vehicle, to buy government bonds or recapitalize shaky banks.

Regling, who visits Beijing regularly, said he would meet with officials of China's finance ministry and central bank.

"It will be interesting to listen to them, like I listen to investors from many other parts of the world," he said at a news conference.

He said the fund wants to find out how to structure investments "so that the money will actually come" from China and other investors, he said.

Also Friday, a deputy Chinese finance minister said Beijing needs to learn how the new investment vehicle will work before deciding whether to invest.

China wants details on the amount of bonds issued by Italy and other individual European governments that might be guaranteed by the fund, Zhu Guangyao said at a separate briefing.

"We must wait for the technicalities to emerge and then carry out serious study before we can decide on investment," Zhu said.

Regling said one issue to discuss is how to structure the special purpose vehicle to make it more attractive to China and other possible investors by having the EFSF absorb a bigger share of possible losses.

Regling stressed that the meetings with the Chinese are not negotiations but "regular consultations at an early phase."

Asked about suggestions Beijing might impose political conditions, Regling said officials had not raised that issue with him.

Some European and Chinese commentators say Beijing might press Europe to refrain from human rights criticism or grant Beijing market economy status, which would make it harder for Europe to pursue trade complaints against China.

"I have not been confronted with this," Regling said. "I am not talking on behalf of the European Union, so I am the wrong person" to discuss such issues.

Regling said he hoped to present the bailout fund's bonds as an attractive commercial investment to China once the details are worked out.

"I am optimistic we will have a longer-term relationship," he said.

Associated Press writer Chris Bodeen contributed.



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China European Financial Crisis