China rules out investing forex reserves to bail out EU debt

China cannot use its foreign exchange reserves to rescue other countries, Vice-Foreign Minister Fu Ying said asserting that "the argument that China should rescue Europe does not stand, as reserves are not managed that way".

She stressed that China's USD 3.2 trillion foreign reserves should be managed under the principles of "safety, liquidity and proper profitability".

"China's purchases of European bonds, International Monetary Fund bonds and US bonds are also based on those principles," Fu was quoted by the official media here today.

China already invested over USD 1.25 trillion in US debt, which it finds difficult to extricate as it fears that any attempt to pull out could hurt American economy further, which in turn could heavily dent its exports to US, China's second largest trade partner.

Chinese Commerce Minister Chen Deming said yesterday that China-US trade rose 17 per cent year-on-year to reach USD 363 billion in the first ten months of the year.

The increase led to China and the US becoming each other's second-largest trading partners, Chen said at a dinner held by the American Chamber of Commerce in China (AmCham-China).

Trade between China and the US will likely exceed USD 400 billion in 2011 and the figure will further increase in 2012 according to forecasts from the ministry and customs authorities, Chen said.

"Next year will be a difficult year (for global economy), and a year in which China and the United States should deepen cooperation and join hands in coping with the crisis," Chen said.

About buying EU debt, Fu said there are many misunderstandings about the use of China's foreign reserves.

"Foreign reserves aren't domestic income or money that can be disposed of by the premier or finance minister. Foreign reserves are akin to savings, and their liquidity and safety should be ensured.

"Since the outbreak of the European financial crisis, China has increased its imports from the continent, with trade volumes up 20 percent over last year", Fu said.

She added, "China is not absent from international efforts to rescue Europe. It has been a positive and healthy participant."

Fu also said that China's investment in Europe should be de-politicised, adding that China will not seek power and interests through financial means.

"Successful investment should be reciprocal. We hope our economic activities are not interpreted from a political prospective and are not imbued with political interests. We should follow market economy principles," Fu said.

She was disparaging of a trend arising from the global financial crisis in the Western community that politicized issues concerning China.

"We should treat each other with a moderate and impartial mentality. That will make bilateral relations easier to handle," Fu said.

Feng Zhongping, director of the Institute of European Studies at the China Institutes of Contemporary International Relations, said it is impossible for China to save Europe, but help from China is vital.

He said economic cooperation between the two sides should be in line with economic principles, so the priority of China's investment in Europe is to ensure the safety of its capital.