China Can’t Use Reserves to ‘Rescue’ European Countries, Minister Fu Says

China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.

“Foreign reserves are not revenues,” Fu, whose portfolio is European affairs, said in a question and answer session following a speech in Beijing yesterday. “It’s not money that can be used by the premier or the finance minister.”

Fu said China can’t use its reserves to fund poverty alleviation at home or to bail out foreign countries. The country learned from the 1997 Asian Financial Crisis that it needs to keep large reserves to maintain liquidity in order to honor obligations, she said.

Europe is struggling to contain a sovereign debt crisis that has forced Portugal, Ireland and Greece to seek bailouts. After leaders in October agreed to increase the region’s rescue fund, French President Nicolas Sarkozy said he planned to call Chinese President Hu Jintao to discuss how the Asian country can contribute.

China’s foreign exchange reserves, the world’s largest, stood at $3.2 trillion at the end of September. The country invests in U.S. Treasuries, sovereign debt sold by European Union countries and other international bonds. A portion is also invested in equities and other financial instruments by China Investment Corp., the country’s sovereign wealth fund.

U.S. Investment

China wants to convert some of those reserves into investments in the U.S., Chinese Commerce Minister Chen Deming said separately in a speech to the American Chamber of Commerce in Beijing yesterday evening.

China is “willing to convert some of the holdings of debt into investment in the U.S.,” Chen said, without giving details. He also said that the government is also very concerned that a further “festering” of the debt crisis in Europe will affect the nation’s economy.

The nation’s sovereign wealth fund, China Investment Corp., may give “indirect” support to Europe through investments without being the nation’s main route to any aid, fund Executive Vice President Jesse Wang said Nov. 24.

The fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Wang said in an interview at a forum in Beijing yesterday. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.”

Central Bank’s Call

The Foreign Ministry does not control the country’s foreign exchange reserves, and the ministry’s Fu said yesterday it would have been more appropriate for People’s Bank of China Governor Zhou Xiaochuan to make the remarks, which were in response to a question. Fu is one of six vice foreign ministers, according the the ministry’s website.

Fu also said “now is not the time” for China to have a contingency plan in the event a euro zone country defaults on its debts or exits from the 17-nation single currency. The government has already done its part to help Europe, which has the “wisdom” and strong economic fundamentals to solve its sovereign debt crisis, she said.

“The argument that China should rescue Europe does not stand,” Fu said.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: John Brinsley at jbrinsley@bloomberg.net

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