beyondbrics

By Stefan Wagstyl and Julia Grindell

On a crucial day for the eurozone crisis, a top Chinese official visiting Europe hasn’t missed an opportunity to give EU leaders a stern lecture.

Speaking in London on Thursday, Jin Liqun, chairman of CIC, China’s sovereign wealth fund, indicated that China couldn’t ride to the rescue by buying high-risk bonds unless there was a clear resolution plan.

“We in China are concerned about the unravelling of the situation in the (euro) region,” Jin told an Economist magazine conference.

EU leaders had to do the political heavy lifting. “China cannot (give support) without due diligence. China cannot be expected to buy high risk euro zone (instruments) without a clear picture of debt workout programmes,” Jin said.

And China had more than just cash to bring. “Any help that China can offer now is not just a capital injection but its own lessons from the crisis,” Jin added.

His words, not surprisingly, echoed those of Chinese premier Wen Jiabao, who delivered a similar message at the recent World Economic Forum in Dalian.

He also followed Wen in urging the EU to recognise China as a market economy. This is a long-standing Chinese demand which has acquired new urgency now that the EU wants something – money – quickly from Beijing.

“China cannot be expected to bail out the eurozone unless it opens hurdles to China and other high growth markets,” Jin said.

But Jin said, perhaps as an afterthought, that he was optimistic about Europe’s future.

He was also, needless to say, positive about China’s future. He said a big challenge for the next five years was responding to a growing loss of competitiveness in low-cost labour manufacturing.

As these jobs moved to other Asian countries with lower labour costs, China will have to develop more higher-paid and more added-value jobs.

Jin added that business required stronger intellectual property rights so that it would increase IP-related investments.

Asked about the financial sector, Jin said that overall China’s financial sector was “in good shape”.

He said there were problems in real estate and local government financing vehicles (LGFV).

But in property, the government was taking action to deflate bubbles. And in the LGFVs only 10 per cent of a 10,000bn rmb loan book was ‘dubious’, said Jin.

But dubious loans weren’t necessarily bad. Half the loans were linked to infrastructure schemes – these would generate revenues.

So, in contrast to Europe, nothing to worry about.

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