China won’t bail out Greece
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CAPITAL MARKETS

China won’t bail out Greece

China has been making noises about helping out the eurozone by buying Eurobonds, but it won’t be helping Athens any time soon

As European Union members thrash out an agreement on a second Greek bailout, market participants have been watching China closely to see if it will help Greece. The Chinese foreign ministry has confirmed it is willing to talk about ways it can help stabilise the eurozone economy, but experts say that China bailing out Greece directly is highly unlikely.

“China could easily afford to bail out Greece,” says Stephen Lewis, chief economist at Monument Securities. “[To find the money to buy Greek bonds] China is most likely to divert funds from US Treasury securities. However, this would make life more difficult for the US housing market and the US Treasury would not be happy.”

Help, wherever it comes from, would certainly be welcome, and while the west struggles with its debt problems, the emerging markets seem a very attractive place to go looking for a solution.

In a statement ahead of a visit to Europe in the summer, a spokesman for premier Wen Jiabao said: “The Chinese government has already taken a series of proactive measures to push Sino-Europe trade and economic cooperation, such as buying Eurobonds. China is willing to continue helping European countries realise economic growth.”

In early September 2011, Italy turned to China for help on its sovereign debt issues to see if it would buy its bonds, as well as make investments in strategic companies.

But experts say that bailing out Greece is not on China’s agenda right now.

“All the Chinese seem to do is make friendly noises,” says Lewis.

But then China has its own agenda. Analysts point to its desire to diversify its holdings away from the dollar, as well as prepare itself for its own problems.

“[As opposed to supporting Greek investment], supporting multinational investment helps China to develop global firms as well as diversify their capital outflow, predominantly away from government debt such as US Treasuries”, says Linda Yueh, a fellow of economics at the University of Oxford.

Others agree.

“China and emerging markets in general may not be willing to individual country bonds. They are more likely to buy European debt,” says Bhanu Baweja, global head of emerging markets and fixed income at UBS.

Indeed, whether or not China has the capacity to bail out Greece, it is probably unwilling to loosen its monetary policy at the moment.

“Growth is chugging along at reasonable levels, and the policy bias is more tuned to local concerns such as inflation, quality of governance, corruption, high property prices and bad loans suffered by local government entities,” says Baweja.

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