Official defends foreign reserves

BEIJING - China cannot use its foreign exchange reserves to rescue other countries, Vice-Foreign Minister Fu Ying said on Friday.

"The argument that China should rescue Europe does not stand, as reserves are not managed that way," Fu said.

She stressed that China's $3.2 trillion in foreign reserves should be managed under the principles of "safety, liquidity and proper profitability."

"China's purchases of European bonds, International Monetary Fund bonds and US bonds are also based on those principles," Fu said.

There are many misunderstandings about the use of China's foreign reserves, she said.

"Foreign reserves aren't domestic income or money that can be disposed of by the premier or finance minister," Fu said. "Foreign reserves are akin to savings, and their liquidity and safety should be ensured."

Since the outbreak of the European financial crisis, China has increased its imports from the continent, with trade volumes up 20 percent over last year, Fu said.

"China is not absent from international efforts to rescue Europe. It has been a positive and healthy participant," Fu said.

She also said that China's investment in Europe should be de-politicized, adding that China will not seek power and interests through financial means.

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China's Bind: How to Avoid a Crash Landing

ORDOS, China—For a sense of the sharp policy shift China's leaders have to orchestrate to avoid the world's second-largest economy landing with a hard thud, look no further than this Inner Mongolia desert town, where construction cranes have come to an abrupt standstill.

Just as a European crisis and a weak U.S. recovery are hurting Chinese exporters, the confidence that had sustained China's property boom is evaporating, causing a double whammy for growth: fading demand overseas and at home at the same time.

The construction slump could not have come at a worse moment for China's factories: A key manufacturing measure Thursday, the official purchasing-managers index, fell to 49 in November, below the 50 mark that separates expansion from contraction and the lowest since the financial crisis in February 2009.

With both the real-estate and export sectors in trouble, the warning light on China's growth is flashing red. Like in the last crisis, China's leaders have been quick to react but this time around their options are limited.

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