China advocates Europe borrow in renminbi

Commentary: If you want a friend in Beijing, get a dog

Oct. 31, 2011, 12:00 a.m. EDT
By David Marsh, MarketWatch
101 Comment

BEIJING (MarketWatch) — In the wake of last week’s new deal on European debt, China is serving up a steely reminder to Europe: you may have to start borrowing in renminbi to gain a sympathetic hearing from the world’s largest creditor.

Already officially enshrined by U.S. Secretary of State Hillary Clinton as bankers to the world’s biggest debtor the Americans, the Chinese have no wish to become, too, a last-ditch lender to the Europeans. The idea of renminbi borrowing has been put forward by Beijing advisers and officials as a way of lowering Chinese foreign-exchange risks caused by further exposure to Europe — and also of using the Europeans’ latest discomfiture to advance China’s international monetary-policy agenda.

If this happened, it might pave the way for the U.S. Treasury eventually to issue renminbi-denominated paper — a momentous moment in world monetary history .

Click to Play Europe's week ahead: ECB, G20 meetingsInvestors are awaiting an interest-rate decision from the European Central Bank and the meeting of the Group of 20 leading economies in France next week.

Klaus Regling, the head of the European EFSF rescue fund, was in Beijing on Friday to display to his Chinese hosts the latest selection of wares from Europe’s bargain-basement bailout bazaar. During his visit, when he gave a lecture at Tsinghua University, Regling did not rule out renminbi funding in future.

It was a mistake for the European authorities to give the impression that Regling’s visit was part of a post-summit funding spree. Publicity surrounding his journey to Beijing immediately after the Brussels summit was bound to raise expectations to unmanageable heights.

The Chinese were already unamused by last week’s European Union postponement of regular high-level consultations because of the elongated EU summit. Allowing headlines to develop — however unrealistically — that Europe expects Oriental largess to flow in the wake of the bailouts was not a clever move.

Regling somewhat unwisely commented that China had been “a good, loyalâ€