February 19, 2012 11:28 am
China and Japan unite on IMF resources
In a rare display of unity, China and Japan have expressed conditional support for an expansion of the International Monetary Fund’s resources to help address Europe’s sovereign debt crisis.
In a meeting in Beijing on Sunday, Wang Qishan, Chinese vice-premier, and Jun Azumi, Japanese finance minister, said they were prepared to support the IMF’s “important role” in combating turmoil in the eurozone.
However, they warned that the eurozone would need to lift the €500bn cap for its bail-out funds if it hoped to persuade non-European Group of 20 nations to increase their funding of the IMF.
Christine Lagarde, IMF managing director, has been pushing for an extra $500bn in funding to contain the eurozone crisis and to protect economies around the world from spillover effects. Eurozone countries have so far committed $200bn, while the US has said it will not contribute additional funds.
The resulting gap is “a very large number”, said a senior Japanese official. “Japan and China both believe that it will be exceedingly difficult to fill that gap unless the cap on the European Stability Mechanism is removed.”
The ESM is expected to debut in July as the permanent successor to the temporary, €440bn European Financial Stability Facility.
Eurozone finance ministers meet on Monday to discuss a new debt relief package for Greece.
The bilateral consultation on the issue is part of a broader effort at closer co-ordination of international financial policies between Tokyo and Beijing. “We agreed that Japan and China will co-operate so as to be able to common action in response to an IMF request,” said Mr Azumi on Sunday.
The two sides agreed on regular follow-up consultations through the vice-governors of their central banks and vice-ministers of finance.
“Japan co-ordinates closely with the US when it comes to the IMF, so we find it very strange that China and Japan, the two largest holders of foreign exchange reserves, would not do that, especially now that there are so many global crises these days,” said the senior Japanese official.
Mr Azumi said he and Mr Wang agreed that European countries should strengthen their own “firewall” against the debt crisis.
China and Japan also agreed to work more closely to promote the use of yen and the renminbi in cross-border trade, and to support a potential doubling of the $120bn funds available to an Asian crisis prevention mechanism known as the Chiang Mai initiative.
Japan and China, including Hong Kong, are the two biggest contributors to the CMI, a pan-Asian network of bilateral currency swap agreements that grew out of the regional crisis of the late 1990s.
In a further show of co-operation, Japan has applied to invest in Chinese government bonds – a market off-limits until now.
Copyright The Financial Times Limited 2012.
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