Europe debt crisis: 3 reasons why China won't help out

Although China, the world's largest creditor, has bought European bonds in the past, experts doubts that it will reach out to help alleviate the Europe debt crisis. There are reasons why it would, and here are three main reasons why it won't:

1.China has been burned before

Chinese leaders, especially in the financial field, are extraordinarily cautious. China’s sovereign wealth fund has already been burned by a couple of bad foreign investments, and the eurozone looks like too much of a political mess for Beijing to want to get involved. For men who hate uncertainty, Europe is not a comfortable place to be at the moment.

2.It would be a hard political sell at home

Lending to rich Europeans would be a hard political sell at home. The arcane economics of foreign exchange earnings mean that the Chinese government cannot actually use its $3 trillion of foreign exchange reserves to build hospitals, schools, or a decent social security system at home. But try explaining that to the ordinary Chinese citizen who is wondering why his government should spend money (that he helped earn through the sweat of his brow) to bail out spendthrift Greeks who on average earn 10 times more than he does…

3.It's a volatile moment

Buying eurobonds, even if they are backed by the AAA-rated European Financial Stabilization Fund, may be a less attractive proposition than buying assets. A significant element in the new Greek austerity plan will be privatization; Italy and other nations may have to follow suit.

Both private and state-owned Chinese companies, flush with cash, are more likely to be interested in snapping up distressed assets that will bring tangible business benefits and future profits, than the Chinese government is in buying bonds at a very volatile moment.