China may invest more in EU debt fund

• China is considering how to get "more deeply involved" in resolving Europe's debt crisis
• Comes as German Chancellor Angela Merkel visits Beijing leaders

(Financial Times) -- China is considering how to get "more deeply involved" in resolving Europe's debt crisis by co-operating more closely with European rescue funds, Wen Jiabao, Chinese premier, said on Thursday.

China "is investigating and evaluating concrete ways in which it can, via the IMF, get more deeply involved in solving the European debt problem through [European Stability Mechanism/European Financial Stability Facility] channels," Mr Wen said in a joint press conference with German Chancellor Angela Merkel in Beijing.

The comments have revived hopes that China, which holds by far the world's largest foreign exchange reserves, could add some of this $3.2tn cash pile to existing and future European bail-out funds.

European officials said they believed Beijing had clearly changed its position and more concrete terms of any Chinese contribution were likely to be discussed in two weeks at a delayed EU-China summit.

Mr Wen said it was increasingly "urgent" that a solution be found to the European debt crisis and he called on the international community to co-operate towards that end. The euro rose about half a per cent against the US dollar soon after his words were reported.

Chinese officials have long signalled their willingness to contribute to global efforts to bail out Europe but have also made clear Beijing would not take the lead and would like to see more convincing efforts from Europe's own governments to resolve the crisis.

European leaders last year agreed to leverage the approximately €250bn left in the eurozone's rescue fund, the European Financial Stability Facility, as a way to make the EU's dwindling bail-out resources go further.

One option would be for China to put money into a so-called "co-investment fund" which Klaus Regling, the EFSF chief, has been promoting to public and private investors across the world, including Chinese sovereign wealth funds.

Ms Merkel is in China on a three-day mission to reassure Beijing that Europe is able to tackle its mounting debt problems.

She told an audience of Chinese scholars on Thursday that European countries were taking serious steps to rein in debt and strengthen growth.

"I want to tell you: The euro has strengthened Europe," Ms Merkel said in a speech at the Chinese Academy of Social Sciences, one of the country's leading academic institutions, which functions as a think-tank for the government. "This is not a crisis of the euro, it is a debt crisis and a crisis of different levels of competitiveness," she said.

Ms Merkel's visit comes just days after the EU decision to make the budget discipline required from the 17 euro economies part of national law, which she had been pushing for strongly.

Ms Merkel, who is scheduled to meet President Hu Jintao on Friday, also stressed that she would press her Chinese counterparts to support actions against Iran and Syria, two of the countries that top the global political agenda.

Acknowledging Beijing's opposition to a new round of sanctions against Iran, Ms Merkel said it could use its influence to tell Iran to be more transparent about its nuclear programme.

But questions from the audience showed that China's focus is clearly on Europe. Ms Merkel said the financial crisis required every eurozone member country to "do their homework", but also solidarity among the group, and claimed that Europe was growing together in the crisis.

That contrasts with Chinese perceptions that the euro group is plagued by frequent friction and difficulties in communicating a clear common agenda.

In response to a question, Ms Merkel said European countries were looking into whether there was a way to limit the negative fallout from sovereign ratings downgrades in financial crises. "We must face [rating agencies'] judgment, they tell the truth," Ms Merkel said. "But [ratings decisions] can have a reinforcing effect on a crisis."

Additional reporting by Peter Spiegel in Brussels