China refuses to commit to EFSF amid Greek concerns

2011-11-03 10:19:00

China has said it cannot commit to investing in the European Financial Stability Fund (EFSF) until the situation with Greece has been clarified.

European leaders hoped that China would buy EFSF bonds, injecting capital in the region's financial markets.

The EFSF was one part of a three pronged rescue plan put together to solve eurozone's debt crisis.

Last week, eurozone leaders agreed to boost the EFSF capacity to 1tn euros.

European leaders had been seeking investment from China, which has $3.2tn (£2tn) in foreign exchange reserves.

"The fund has not established details of its investment options so we still can't talk about the issue of investing," said Zhu Guangyao, China's deputy finance minister.

Greek concerns

Last week, Klaus Regling, the chief executive of the EFSF, travelled to Beijing in a bid to persuade the country's leaders to invest in the fund.

Though no deal was finalised, it was thought the Chinese authorities may agree to help the troubled economies, not least because the region is one the biggest market for Chinese exports and a crisis may dent demand for Chinese goods and hurt its export-dependent economy.

However, the decision by the Greece government to hold a referendum on the latest bailout package has seen the authorities take a cautious approach.

"Like our European friends, we did not expect [the call for a] Greek referendum," said Mr Zhu.

"It was an independent decision taken by Greece. I hope this period of uncertainty would be contained," he added.

The decision by the Greek government has also resulted in the eurozone leaders withholding the next 8bn euros of rescue loans for Greece until after the referendum.

'Confidence in Europe'

French President Nicolas Sarkozy and German chancellor Angela Merkel have called on Greece to decide whether it wants to continue to be a part of the eurozone.

The two are expected to meet with other eurozone leaders on the sidelines of the G20 summit to discuss the deepening crisis.

Greece's referendum call has already resulted in the EFSF being forced to cancel bond sales targeted at raising 3bn euros.

However, Mr Zhu said despite these concerns, he expected eurozone leaders to solve the crisis soon.

"We have confidence in Europe. We hope the European Union and the euro zone will implement these crucial plans to stabilise financial markets and foster economic growth," he said.