The head of Europe's bailout fund said he does not expect to reach a conclusive investment deal with China during a trip to Beijing, a point underscored by a senior Chinese official who cautioned any decision to buy would inevitably take time.
Some analysts say China has far more upside than downside in providing support for Europe, not least in protecting its global trade, but it may strike a hard bargain to part with some of its huge foreign exchange reserves.
Vice Finance Minister Zhu Guangyao told reporters in Beijing that China is waiting for details on the new investment options for the rescue fund, the European Financial Stability Facility (EFSF), before deciding on further purchases.
"This is not investment in EFSF itself, but in its new forms of investment as guarantor or participant," he said. "So of course we have to wait until it's clearly fully prepared technically and only after conscientious discussion will we decide about this investment."
EFSF Chief Executive Klaus Regling was in cash-rich China just a day after euro zone leaders struck a last minute deal to boost the firepower of its rescue fund, recapitalise banks and reduce the debt burden on struggling Greece.
"We all know China has a particular need to invest surpluses," Regling said at a news conference, referring to the country's foreign exchange reserves of $3.2 trillion -- the world's biggest stockpile. Analysts estimate a quarter of the reserves are euro-denominated assets.
Some Chinese intellectuals say that now is the time for Beijing to negotiate hard, securing access to, control over, or even ownership of some of Europe's best brand names, companies and intellectual property in return for fresh funds.
"Europe has some many famous brands, intellectual property and many high-quality corporate assets. Why should we worry that we cannot get enough returns?" Ding Yifan, an economist at Development Research Centre, a cabinet think-tank, said.
It wasn't clear that Friday's visit would yield any solid additional commitments from China -- already a regular buyer of bonds issued by the EFSF -- to help bail out Europe.
"We think this trip is about helping China understand better the new funding channels of the EFSF," said Chi Sun, an economist with Nomura in Hong Kong.
Chinese officials have welcomed Europe's debt deal but added that the purchase of EFSF bonds is not on the agenda for next week's G20 meeting in Cannes.
European leaders are now under pressure to finalise the details of their plan to slash Greece's debt burden and strengthen efforts to revive the euro zone.
French Finance Minister Francois Baroin said investment by China would be a "gesture of confidence".
WAITING FOR DETAILS
Regling was due to meet officials from China's central bank and finance ministry on Friday. He said he was also in contact with sovereign funds globally.
New instruments were being designed and models tested to scale up the fund, Regling said, adding that he wanted to hear how the fund could best structure investments to secure capital.
Chinese analysts were skeptical that Beijing would agree to a big investment just yet.
"If everything is not clear, how can you ask China to get involved in the process?" said Zhang Yongjun, an economist at CCIEE, a top government think-tank in Beijing.
The 440-billion-euro EFSF was set up last year and has already been used to provide aid to Portugal, Ireland and Greece as the euro zone deals with its biggest ever crisis.
After the Brussels summit, governments announced a deal under which private banks and insurers would accept 50 percent losses on their Greek debt holdings and hard-hit European banks would be recapitalised. Regling said Tier-1 capital at large European banks would be raised temporarily to 9 percent.
They also said the EFSF would be leveraged to give it firepower of some 1 trillion euros to put a safety net under bigger euro zone states, such as Spain and Italy and prevent them from being swept up by the crisis.
European officials have said the leverage would be achieved either by offering insurance to buyers of euro zone debt in the primary market or via a new special purpose investment vehicle that it hopes would draw funds from China and Brazil, among other countries.
Brazil rejected the idea of buying euro zone bonds even before the region's leaders struck a deal."I believe that European countries do not need funds from Brazil to buy bonds. Brazil is not considering it," Mantega told reporters in Brasilia on Tuesday. "They have to find solutions to the European problems within Europe."
NO CONCESSIONS TO BEIJING
Beijing has repeatedly expressed confidence that Europe can overcome its two-year-old debt crisis. President Hu Jintao said China hoped the measures agreed in Brussels would help stabilise the euro zone.
But an English-language commentary by the official Xinhua news agency played down the potential impact of the EFSF, saying Europe would face debt, economic and integration challenges for years to come.
"A European Financial Stability Fund with more firepower would not play a magic role in addressing the root cause of the problems," it said.
Regling tried to reassure China that investing in the fund was a safe investment, saying its triple-A rating was solid.
"I think the EFSF can offer a good product that is commercially interesting," he said.
When asked if China was asking for any special concessions in return for its support, Regling said Beijing hadn't done so.
"When they buy our bonds, they buy the same bonds as everybody buys," he said. "There is no special deal and so it is normal conditions and we published those conditions on our website."
One factor that will determine China's negotiating position is that the amount of money on hand in its reserves may not be anywhere near the $3.2 trillion mark.
Excess reserves are calculated closer to $1.5 trillion, some of which has been channelled into China's sovereign wealth fund. A lot could also be used to clean up a pile of local government debt.
Free reserves might be as low as $500 billion, said MES Advisers President Paul Markowski, a long-time external adviser to China's monetary policy makers.
Any contribution to the rescue fund is fraught with risks for China but for many analysts the upside far outweighs the danger of failure.
A meltdown in the euro zone would lead to a global downturn that would impact China's exports. A collapse of the euro could drive up the dollar and set back China's efforts to internationalise the yuan.
Support on the other hand would give China political leverage to promote some of its global ambitions.
China also recognises the potential temptation for Europe and the United States, trying to tackle a sluggish economy, to look to currency devaluation as an answer to their problems.
The main currency reserve countries should "maintain relative exchange rate stability and avoid forcing other countries to depreciate," Zhang Tao, director of the international department of China's central bank, told reporters.