International
Monetary Fund chief Christine Lagarde on Wednesday warned the world was at risk
of plunging into "uncertainty and financial instability" and urged
Asian economies to be on their guard.
Speaking at the International Finance Forum in
Beijing, Lagarde said Asia was not immune to problems currently sweeping the
eurozone, as she began a two-day visit to China likely to focus on the
deepening debt crisis in Europe.
"If we do not act together, the economy
around the world runs the risk of a downward spiral of uncertainty, financial
instability," she said at the forum in Beijing.
It is unclear who Lagarde will meet in the
Chinese capital, but talks are expected to touch on China's possible
contribution to a bailout fund -- the European Financial Stability Facility --
to help the debt-laden eurozone.
European leaders have called on China, which
has the world's largest foreign exchange reserves at $3.2 trillion, to invest
in the fund.
The head of the fund, Klaus Regling, has
travelled to Beijing for talks about a possible contribution, but China has so
far made no firm commitment to provide financial assistance for the troubled
eurozone.
Europe has been discussing with China and
other investors how to structure a special purpose investment vehicle and is exploring
the possibility of linking it to the IMF.
"We are all in it together and our
fortune will rise or fall together," said Lagarde, fresh from a visit to
Russia where she warned Moscow against complacency given the budget crises in
eurozone states.
"Asia is not immune. Whether it is the
trade channel or whether it is the financial sector which can operate as a
crisis accelerator, Asia needs to be prepared."
Lagarde also called for a stronger Chinese
currency "in real effective terms", adding to intense international
pressure for a faster appreciation in the yuan.
The United States and Europe -- major buyers
of Chinese products -- have accused Beijing of deliberately keeping its
currency undervalued to give its exporters an unfair advantage, though Beijing
has rejected the charges.
A move to help developed European countries
out of the current crisis would be a hard sell for leaders of a country where
millions of people still live in poverty, and inflation and housing costs are
straining household budgets.
China has also been burned before on risky
overseas investment. It bought stakes in investment bank Morgan Stanley and
asset management firm Blackstone only to see values collapse in the 2008 global
financial crisis.
The losses led to severe criticism of the
investment choices made by the $400 billion sovereign wealth fund -- China
Investment Corp (CIC) -- only a year after it was established in 2007.
At the weekend, a top official at CIC accused
Europe of "indolence".
Jin Liqun, chairman of the board of
supervisors of the fund, said in an interview with Al-Jazeera that Beijing
would consider investing in Europe but any decision would be based on likely
investment returns.
Lagarde is due to brief the press about her
visit on Thursday.
Sebastien Blanc | AFP News
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