Reuters China might just be about to strike the deal of the decade. For a fraction of the trillion euros needed to clean up Europe's debt mess, Beijing could score huge diplomatic kudos for helping end the crisis while satisfying a domestic agenda of reducing dollar dominance in world trade and further loosening its currency straitjacket. Any contribution to the rescue of the euro zone is fraught with risks — and no sum has yet been declared — but for many analysts the upside for China far outweighs the danger of failure. Among multiple motivations China has for contributing to a euro zone bailout — such as supporting recovery in its single biggest export market and protecting the value of the 600 billion euros of sovereign debt in the bloc it already owns — being hailed as the banker to the world is a strong one. Beijing already enjoys that status in Asia, largely because no country in the region has any desire to ask the IMF for help again after the bruising experiences of the 1997-98 financial crisis, while they would be more than willing to seek assistance from their principal trading partner. “If you step that up a notch, China in an IMF-type role, then this is simply a soft-power projection on the global economic stage,” says Tim Condon, head of Asian economic research at ING in Singapore. China has revelled in the role of savior before, earning plaudits during the Asian financial crisis for not devaluing the yuan as the currencies of regional competitors crumbled, and again at the height of the 2008 global downturn when it unveiled a 4 trillion yuan domestic stimulus package that many observers say kept the world economy moving. China's contribution to any rescue this time around would likely be far smaller. That's because while China officially has a pile of $3.2 trillion of foreign exchange reserves, there isn't nearly so much money on hand. Excess reserves — the amount of foreign currency above and beyond that needed to cover short-term trade and sovereign debt purposes —are calculated closer to $1.5 trillion. Vice Finance Minister Zhu Guangyao told a Beijing news conference that while Europe clearly saw China as an important investor, China wanted more detail about plans to boost the euro zone rescue fund before deciding whether to commit more capital. Li Daokui, an academic member of the monetary policy committee of China's central bank summed up the quandry. “It is in China's long-term and intrinsic interest to help Europe because they are our biggest trading partner, but the chief concern of the Chinese government is how to explain this decision to our own people,” Li told the Financial Times. “The last thing China wants is to throw away the country's wealth and be seen as just a source of dumb money.” A big Chinese investment bolstering the existing 440 billion euro European Financial Stability Facility -- even one far more modest than China's 2008 intervention -- would be a clear signal of closure for the crisis that Europe's leaders are desperate to send. It also would advance several of China's own goals. __
