European leaders look to China for possible bailout help

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REPORTING FROM CANNES, FRANCE, AND BEIJING -- If the Greek prime minister hadn’t dropped a bombshell this week, all eyes at the Group of 20 meeting might have been on the Chinese president instead.

On the eve of the Cannes summit, Greek Prime Minister George Papandreou was summoned Wednesday to explain his shocking call for a referendum on the bailout deal. Chinese leader Hu Jintao arrived ahead of the official meetings too. But Hu was there for a working dinner and bilateral session with French President Nicolas Sarkozy.

The summit host has good reason to wine and dine Hu: European nations need money for their bailout fund, and no one has cash like the Chinese –- more than $3 trillion in foreign reserves.

European leaders already have made some recent overtures to China. Last week, top officials of the rescue fund flew to Beijing, hat in hand. The pilgrimage drew sharp criticism from some who were worried about what China might want in return, and others who were disgusted by Europe’s groveling.

The Europeans looked “desperate and foolish trotting off to Beijing,” said Simon Johnson, an MIT professor and former chief economist at the International Monetary Fund. Under the European bailout plan, the IMF could provide a vehicle for a war chest to help with future bailout needs.

If Europeans are holding out hope that China will be a financial savior, they’re likely to be disappointed.

Some Chinese officials have stated that they want to stand behind Europe. “All countries sit in the same boat,” Trade Minister Chen Deming said this week. But Hu told reporters that he believed Europe could resolve its problems on its own.

One reason China may want to invest in Europe, even without a lot of conditions, is that the move could help burnish its credibility as a global power, said Yi Xianrong, an economist at the Chinese Academy of Social Sciences.

Yet Hu and his Communist Party comrades may not be as free to make such an investment as one might think. Beijing is sensitive to how the public would react to a European bailout, especially while China grapples with its own set of problems, including inflation, weak social services and rising government debt.

Investing poorly, as the country’s sovereign wealth fund has done in the past, could subject the emerging economic powerhouse to some unpredictable political backlash. China’s trove of reserves is seen by many in the public as a product of decades of Chinese hard work.

U.S. officials, for their part, appear to be less than enthusiastic about a big Chinese investment in an IMF fund, a potential route for the Asian giant’s involvement. One possible reason: Fears that the Chinese will want greater voting power in the IMF, a post-World War II institution that has long been dominated by the U.S. and the West.

It could be seen as “a kind of Trojan horse which could lead to a substantial reduction in U.S. influence,” said Jacob Kirkegaard, a Europe specialist at the Peterson Institute for International Economics in Washington.

The bottom line: Analysts don’t see the Chinese making much more than a symbolic gesture to help Europe.

At the end of the day, reckons MIT’s Johnson, maybe China will pony up $10 billion or $20 billion -- a pittance given that Italy’s debts alone are in the $2-trillion range.

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-- Don Lee in Cannes and David Pierson in Beijing