Hardly a week passes without some washed out, discredited legacy media outfit bringing up the "China will bail out Europe" rumor from the dead if only for a few minutes, just so the robots which have now shifted from stocks to the EURUSD, ramp the currency higher and stop out the weak housewife hands. So while we know what the wishful thinking within the status quo (and those who wish to receive its advertising dollars) is, here is the reality. From Reuters which translates China's Financial News: "Chinese banks and companies in the northern port city of Tianjin have cut their exposure to Europe as the euro zone debt crisis festers. In a recent survey of 53 banks and 15 firms done by the local foreign exchange regulator, 11 banks said they had cut or stopped trade finance for European countries with high debt risk, suspended derivatives business with European banks, cut or stopped lending to foreign peers, particularly those from Europe, the newspaper said." Isn't this a little contrary to an atmosphere of mutual goodwill if not mutual bail outs? "They also reduced the issuance of euro-denominated wealth management products as a weakening euro resulted in negative earnings last year. The pullback by Chinese companies comes as European leaders have appealed to the Chinese government to support debt bailout funds. Although Chinese leaders have expressed confidence in European nations, they have also refrained from making firm financial commitments, urging Europe first to take further steps on its own." But why is Tianjin important: "Europe is Tianjin's second-largest exporting destination only after the United States. But local exporters are trying to sell more domestically or venture into emerging markets to cut their reliance on the euro zone, the newspaper said." Great work Europe: by slowly going broke, you are implicitly promoting the development of the Chinese middle class. And for that general act of goodness for humanity, well Chinese humanity, we salute you.
Reuters has more [14]:
Since September, Chinese companies have typically paid their import bills quickly by buying foreign currencies, as tightening liquidity overseas has almost doubled their funding costs, according to the survey.
On the whole, Chinese banks have limited exposure to the euro zone debt crisis, it added.
The euro zone must agree and approve a 130-billion-euro ($170 billion) bailout package with Greece before Feb. 15 to allow time for complex legal procedures involved in the bond swap to be completed in time for a March 20 bond redemption.
Failure to strike a deal risks pushing Athens into a chaotic debt default that could threaten its future in the euro zone and worsen the crisis.
And further confirming that once the market shortly reverts back to asking just who it is that will rescue Europe (because despite what is happening in Greece every day, Europe is still in dire need of rescuing, especially now that there is again stigma associated with LTRO borrowing), they can forget China is the following piece from the WSJ [15], where we learn that the IMF is now literally begging China to bail out itself so it can bail out Europe next:
China should be prepared to sharply stimulate its economy if Europe's growth falls more than anticipated, the International Monetary Fund said, adding to expectations that Beijing could turn to spending if conditions significantly worsen.
In its China economic outlook report released on Monday, the IMF urged China to run a deficit of 2% of GDP rather than looking to reduce the country's deficit as planned, given the uncertainty in the global economy.
If Europe's problems turned out to be worse than expected, China should hit the fiscal gas pedal harder. In that case, "China should respond with a significant fiscal package" of about 3% of GDP, the IMF said, including reductions in consumption taxes and new subsidies for consumer-goods purchases and for corporate investments in pollution-control equipment.
However, the IMF warned that Beijing should execute any fresh stimulus through its budget rather than the banking system. China used a four trillion yuan, or about $635 billion, stimulus package in 2008 to help blunt the impact of the financial crisis, in large part through bank lending. Economists now worry China's response to new economic threats could be hobbled if a significant slowdown in growth leads to bad debt on the balance sheets of China's major state-controlled banks.
China has room to spend. Its deficit last year came in at an unexpectedly low 1.1% of GDP, according to Wall Street Journal calculations, though the figures are subject to considerable revision. A number of economists within the government and in the private sector say spending could help reduce China's reliance on monetary stimulus and help the government transition to a more consumer-driven economy.
Actually, Wall Street is wrong as usual: if anything last night's RBA data confirmed that Chinese inflation, contrary to goal seeked Excel data from the PBOC, is still running quite high, and that not only will the government not engage in monetary easing any time soon, but any fiscal stimulus miles away. Which is certainly far closer than where a European bailout by China would be.