Do Asians See a Role in Solving the Eurozone Crisis?

The Eurozone’s debt crisis has spurred talk about a possible role for BRIC countries to lend a helping hand through increased financing of the International Monetary Fund (IMF). While discussions are still under way over whether the IMF will even step into the euro crisis, rising powers such as China and Brazil continue to express interest. G20 finance ministers and central bankers met in Paris over the weekend and said they expected the October 23 European Union summit to “decisively address the current challenges through a comprehensive plan“. Today’s blog post highlights the views in China, India, and Russia on this issue:

CHINA

The mixed views in China indicate an interest to help the Eurozone in such a way that is both economically practical and politically beneficial to China-EU relations.

  • Ding Gang, a senior reporter with the People’s Daily, was more blunt about what China should expect in return: It is only “the most basic fair treatment” to ask that the EU recognize China’s market economy status and end the arms sale ban on China.
  • Specific policy recommendations came from a recently organized academic forum at Tongji University. It was reported that Qiao Yide, secretary-general of the Shanghai Development Research Foundation, recommended the following: 1) purchase bonds from multilateral institutions (the European Financial Stability Facility) instead of national bonds; 2) encourage Chinese businesses to expand in Europe; and 3) increase the euro’s weight in the currency basket of the Chinese yuan.
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The U.S. Debt Impasse and Views from Greater Asia

With the deadline for a U.S. credit default just two weeks away, concern mounts over the consequences of a U.S. government delay or paralysis in resolving the debt ceiling crisis. Overseas, countries holding large sums of U.S. Treasury securities are watching the debate with heightened apprehension and scrutiny. In this post, we examine Chinese, Russian, and Indian views on the U.S. debt impasse.

CHINA

As the U.S.’ largest creditor, China has repeatedly called for compromise in the debt talks while encouraging Washington to protect China’s investments in the U.S. debt market. Meanwhile, Chinese ratings agency Dagong placed the U.S. on negative watch for a possible downgrade, highlighting the increasing role of rating agencies as a political tool to influence the global financial system.

  • I think there is a risk that the U.S. debt default may happen,” said Li Daokui, advisor to the People’s Bank of China. “The result of U.S. debt default is very serious and Republican lawmakers should stop playing with fire.” Li’s comments also underscored that China is constrained by its vast holdings of Treasuries, and that it is best protected against a U.S. debt default if it stands by the United States. “China can promise that we will not sell our holdings of U.S. debt, but the United States must also promise that you will not hurt our interests by guaranteeing the safety of our investment,” he said.

RUSSIA

In Russia, commentary was cynical across the board with allusions to the massive financial disaster that may result in global markets should the U.S. government fail to raise the debt ceiling. Read more of this post

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