China, Japan Say Europe Must Fix Own Crisis

By Sho Chandra, Sara Eisen and Aki Ito - Sep 22, 2011 8:58 PM PT
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Yi Gang, deputy governor of the People's Bank of China. Photographer: Qilai Shen/Bloomberg

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(Corrects headline in report originally published Sept. 16 to say Chu says China cannot be a `white knight' for the global economy.) Sept. 16 (Bloomberg) -- Victor Chu, chairman of Hong Kong-based First Eastern Investment Group, talks about China's economy, Hong Kong's currency policy and global financial markets. Chu, speaking with Stephen Engle at the World Economic Forum's Annual Meeting of the New Champions in Dalian, China, also discusses an unauthorized trading at UBS AG. They speak on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Officials from China and Japan, the world’s second- and third-biggest economies, indicated that their support for Europe will have limits and the region needs to solve its own debt crisis.

Japanese Finance Minister Jun Azumi said in Washington yesterday that while his nation can buy European Financial Stability Facility bonds if needed, there is no blank check.

“At the margin we can do quite a bit to help,” Chinese central bank Deputy Governor Yi Gang said in a panel discussion yesterday at the International Monetary Fund in the same city. At the same time, “the real solution of the European sovereign debt crisis has to be done by Europeans themselves.”

Group of 20 finance chiefs pledged coordinated efforts to tackle rising risks as Greece teeters on the brink of default and stocks plunge around the world. Weak growth, high unemployment, sovereign stresses and turbulence in financial markets are “renewed challenges facing the global economy,” the officials said in a statement released late Sept. 22.

Azumi said that euro-area nations had “said that this is a euro-area problem, and that the euro-area nations should be the ones to solve the problem. We don’t reject that view, we respect it.”

While additional aid is “a possibility” if Europe succeeds in creating a system for dealing with crises, “it’s not like we’re going to provide a blank check,” Azumi told reporters.

Seeking China’s Help

Yi Gang’s remarks came amid investors’ expectations that China may help stabilize the euro region, after Italy this month followed Spain, Portugal and Greece in seeking investment from the world’s fastest-growing major economy. Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled this month developed nations should cut deficits and open markets rather than rely on China to bail out the world economy.

Also this month, other Chinese officials indicated the country is prepared to offer assistance. Zhang Xiaoqiang, vice chairman of China’s top economic planning agency, said the nation is willing to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity.”

In the panel discussion yesterday, Yi said his nation’s involvement could be at the country level or with the European Union, and could also extend to cooperation with the IMF.

Odds of a Slump

“We’ve consistently invested in Europe,” Yi said. “We will continue to do so.” A unified and prosperous European economy and a stable euro are “good for the world,” he added.

It is unlikely that the global economy will slide into another slump, in part because “the whole world is still at a very low level” of activity, Yi said. “We have a very moderate recovery” following the financial crisis, which indicates global growth “won’t decrease too much,” he said.

“The probability of that is still rather limited,” Yi said, referring to a double-dip recession. With the right combination of policies, countries can manage the debt crisis and “we can still have moderate growth” in the global economy, he said.

One hurdle is that most nations are constrained in implementing further fiscal and monetary policy measures as they already used them to recover from the last slump, he said.

“Fiscal capacity is very limited,” and “monetary policy is already used pretty much to the limit” in terms of interest rates, quantitative easing and other tools in developed and developing nations, Yi said.

To contact the reporters on this story: Sho Chandra in Washington at schandra1@bloomberg.net; Sara Eisen in New York at seisen2@bloomberg.net; Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net