Forex News – Europe turns to China for help with EFSF

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After agreements on a debt deal were made at the EU Summit, European leaders now turn to emerging economies like China and Russia in order to supplement the €440 billion rescue fund.

Yesterday French President Nicolas Sarkozy spoke with Chinese President Hu Jintao with hopes to persuade the world’s second largest economy to contribute capital to the euro zone rescue fund, the EFSF. China is the holder of the world’s largest foreign-exchange reserves.

No specifics have been released of the phone conversation leading to speculation that China has not made any firm commitments yet to invest in the scheme.

Senior advisers to the Chinese government have told the Financial Times that China’s involvement in Europe will depend on European leaders satisfying some key conditions, though it did congratulate Europe for making progress in tackling the debt crisis. They indicated China is very likely to contribute to the EFSF bail-out fund as Europe is a large export market for China.

Li Daokui, a member of China’s Central Bank Monetary Policy Committee reported to the Financial Times that Chinese support would depend on Europe’s ability to guarantee the safety of any investment.

“It is in China’s long-term and intrinsic interest to help Europe because they are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people,” Li said.

Li added that China could use fiscal support as leverage to deter Europe from criticizing China’s currency policy, which is often criticized for being undervalued and unfairly benefiting Chinese exports.

The focus will turn to the upcoming G20 Summit in early November which will be a suitable platform for discussing global economic issues.