China probably can’t play a major role in helping resolve Europe’s sovereign-debt crisis, even as it seeks to avert disruptions to the global economy, said Cheng Siwei, a former senior Chinese legislator.
“I don’t think we can play a very important role” in bailing out Europe, in part because China can’t sell its U.S. government-bond holdings to buy European securities, Cheng said today in response to a question after a speech in Washington. “Certainly we would like to help” avert a euro zone collapse, which would be a “disaster” for the world economy, he said.
Stocks fell worldwide today after Greek Prime Minister George Papandreou’s plan to hold a referendum on Europe’s bailout fueled concern the continent’s debt crisis will worsen. European leaders are seeking financial support from China, holder of the world’s largest foreign-exchange reserves, for an enlarged rescue fund aimed at containing the region’s sovereign-debt crisis.
Chinese Vice Finance Minister Zhu Guangyao said last week his government wants more details about the plan before making any decision on investment. Yesterday, Chinese President Hu Jintao said he believes Europe has the capability to overcome its difficulties and that the nation is paying attention to developments and problems in the European Union.
Cheng, vice chairman of the Standing Committee of the National People’s Congress from 1998 to 2003, said he was speaking for himself, not as a representative of the Chinese parliament, and was giving his personal views. He is currently chairman of China’s International Finance Forum.
Cheng also said China doesn’t intend to pursue a very large trade surplus and its foreign-currency reserves are too big. The nation can control its trade surplus at less than 4 percent of gross domestic product, he said in his speech at the Brookings Institution. Foreign-exchange reserves, now $3.2 trillion, should instead total 20 percent of GDP, or about $1.2 trillion, he said.
“We should not accumulate a very high foreign exchange reserve,” Cheng said. Having so many U.S. dollars flowing in limits the flexibility of China’s monetary policy, he said.