By Nick Edwards and Benjamin Kang Lim
"Domestic pressure (on China's leaders) is huge. Ordinary people are condemning" any decision to throw Europe a lifeline, one source with ties to China's top leaders told Reuters, requesting anonymity because of political sensitivities.
European officials have asked China to put cash in a mooted special purpose investment vehicle to enhance the region's rescue fund four- to five-fold, to about 1 trillion euros.
China has given the idea a cautious response, saying it wants details first, but Europe will surely deliver the message again to Chinese President Hu Jintao at the summit, which ends on Friday.
But a large swathe of China's 1.3 billion people is poor and many believe there are far better ways to spend excess cash in the $3.2 trillion pile of foreign exchange reserves the country has amassed in its rise to manufacturing might.
High on their priority list: handouts to help lower soaring prices of basic goods, subsidies to cut the crippling cost of home ownership, more investment to support job creation and easier access to bank credit for consumers and companies alike.
"Better to save Wenzhou than Ouzhou (Europe)" the source said, referring to one of China's wealthiest cities which has been hit by a credit crunch. Dozens of bosses of small and medium enterprises in Wenzhou have gone into hiding this year after borrowing heavily from loan sharks after the government tightened bank credit to fight inflation.
Granted, China's leaders can't easily spend the foreign exchange on domestic problems. Doing so would mean converting U.S. dollars, say, into yuan and driving up the value of a currency whose exchange rate China labors to keep steady.
But obsessed with maintaining their grip on power, top leaders fear they could end up with "ten thousand arrows piercing their hearts," as the source put it, if they make a hugely unpopular decision and political rivals gang up on them.
"China's leaders are worried they will get nothing in return" for helping Europe, the source said.
FEAR OF CRITICISM
While China's top officials are not popularly elected, they still can come under withering criticism from the populace. While criticism is often simply ignored, enough of it can expose a senior leader to attack by other factions in the Communist Party leadership.
Former reformist Premier Zhu Rongji came under fire for his championing of China's bid to enter the World Trade Organization from officials who believed he made too many concessions.
"In fact, I have been widely criticized," Zhu told a U.S. official at the time, according to his memoirs. "There is a rumor at home and abroad that said 'Zhu Rongji will resign, step down'," he wrote.
With Hu in Europe, the tens of thousands of blog posts on the subject show how sensitive the issue is in China, where the Internet has become the place for 480 million users to air grievances.
As of Thursday, there were about 74,000 postings on the euro zone debt crisis on the microblog site of www.sina.com.cn -- China's most popular among microbloggers -- and more than 47,000 on www.qq.com.
"The average wage of Chinese workers is a few U.S. dollars. The average wage of European workers is thousands of euros. Do they need China to rescue them?" wrote a microblogger identifying himself as "philosopher's journey."
"This is the people's blood and sweat money that is being used to bail out gluttonous and lazy Greeks," read a microblog posting by Sean Wu.
China has made no public offer to buy bonds under the latest EU measures drawn up last week.
And with a little more than a year left in his second five-year term, Hu is loathe to risk criticism with what could be perceived as excessive generosity for Europe.
An estimated 200 million people live at or below subsistence levels in China and spending 20 billion euros on them would raise their standard of living by half for a year, calculations by research firm High Frequency Economics show.
Any unilateral move by Hu could be politically disastrous, and he is more likely to seek consensus among top leaders.
Hu is no political strongman and merely the first among equals in the Party's powerful nine-member Politburo Standing Committee, which rules by consensus. Hu and Premier Wen Jiabao are due to retire from the Standing Committee in autumn 2012, and from their state posts in March 2003.
"Hu Jintao will have the Politburo Standing Committee collectively endorse (any bailout) to reduce political and personal risks," said Kou Chien-wen, a political scientist and China watcher at Taiwan's National Chengchi University.
The economic case to help Europe seems clear: China already has an estimated $800 billion of its foreign reserve cash pile invested in euro-denominated assets and helping save its single biggest export market far outweighs any competitive threat posed by bailed out, but reforming, euro zone economies.
"Whether Greece, Italy or Spain becomes a bit more competitive is not really a big problem for China," HSBC's chief economist Stephen King said.
But China's leaders are preoccupied with political maneuvering and horse-trading in the run-up to the 18th Party Congress, where a sweeping leadership reshuffle is expected.
"In the building up to the appointment of new leadership at all key levels across China, why in the world would anyone in Beijing make any commitment about anything related to the EU banking and fiscal crisis, when positions are changing daily?" said Ken Courtis, the co-founder of Themes Investment Management, an Asia-focused private equity fund.
Intellectuals are already advocating Beijing play hardball with Brussels, Europe's policymaking home. A quote from China's Vice Finance Minister Li Yong on Wednesday could be viewed in that light.
"China is willing to work together with other countries, the World Bank and IMF, to help Europe to deal with the debt crisis under multilateral efforts," Li said at a conference organised by Bank of America/Merrill Lynch.
Invoking the image of assistance through the World Bank, lender to the world's most problematic developing nations, suggests to some that the balance of power message is clear.
"For Chinese decision-makers and Chinese public opinion, we are just a bunch of spoiled, declining nations," Jonathan Holstag, research fellow at the Institute of Contemporary China Studies at Vrije University, Brussels, told reporters in Beijing.
"We should work harder if we are to deserve their money."
(Additional reporting by Kevin Yao; Editing by Don Durfee, Brian Rhoads and Dean Yates)