Bloomberg News

China Must Avoid Lending to ‘Troubled’ Nations, Yu Yongding Says

September 13, 2011

Sept. 14 (Bloomberg) -- China shouldn’t buy bonds issued by individual euro-area countries because their leaders and the European Central Bank are in disarray, said Yu Yongding, a former adviser to China’s central bank.

“China has to wait until it can see a clearer road map by euro countries for solving sovereign-debt problems,” Yu, who is based in Beijing, said in e-mailed comments today. The nation is not a lender of last resort for “troubled countries,” he added.

Brazilian Finance Minister Guido Mantega said yesterday that officials from Russia, India, China and South Africa will discuss next week ways to help Europe overcome its debt crisis. Italy is struggling to avoid a collapse in investor confidence and German Chancellor Angela Merkel has warned that an “uncontrolled insolvency of Greece” would roil markets.

Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said Sept. 12, adding that bonds weren’t the focus.

Leaders of euro-area countries and the European Central Bank are “in disarray” and the ECB’s own purchases of euro members’ sovereign bonds are controversial, Yu said.

China can consider buying bonds of the European Financial Stability Facility, a temporary bailout fund, or European common bonds if they become available, said Yu, who’s a researcher at an institute under the Chinese Academy of Social Sciences. Common bonds, which have been ruled out by Merkel, would enable high-deficit countries to access financial markets at lower rates than they currently pay.

Premier Wen Jiabao said in June that China can offer “a helping hand” to Europe by buying a limited volume of sovereign bonds. The Asian nation pledged that month to buy Hungarian government bonds and agreed to extend a 1 billion euro ($1.37 billion) loan for development projects in the country that needed an International Monetary Fund-led bailout in 2008.

Italy joined Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China, holder of the world’s largest foreign-exchange reserves, after the 2007 collapse in U.S. mortgage securities set off a crisis that widened to engulf euro-region sovereign debtors.

--Kevin Hamlin. Editors: Paul Panckhurst, Sunil Jagtiani

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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