China can only provide limited help to Europe in coping with its debt crisis, by continuing to invest in the region, Yi Gang, China's foreign exchange chief, said amid economists' warning that the country needs to be cautious in offering a helping hand.

An abandoned bicycle in front of the headquarters of the European Central Bank in Frankfurt, Germany. The International Monetary Fund has warned that the global economy is entering a dangerous new phase.

The debt problem in Europe should be solved by Europeans, said Yi, who is head of the State Administration of Foreign Exchange and a vice-governor of the People's Bank of China, the central bank, in Washington on Sept 22.

In helping Europe, however, China must remain cautious because of the continuing uncertainty over the trading bloc's prospects, economists said.

They said the country - which has foreign exchange reserves of more than $3.2 trillion and is attempting to diversify its stockpiles away from heavy investment in US debt - needs to wait before making firm commitments. Their comments came after Standard and Poor's downgraded Italy's credit rating and the International Monetary Fund (IMF) warned that the global economy is entering a dangerous new phase.

The experts also warned that the Chinese economy is facing problems of its own, such as inflation, coupled with slowing growth and rising levels of local government debt.

As the situation in the eurozone worsens, there is the "possibility of a disorderly fall, or, even worse, a disorderly breakdown, of the inter-European monetary union (that) would have heavy side-effects for other regions in world", said Paola Subacchi, research director of international economics at the Royal Institute of International Affairs in London. "We can reasonably assume that nobody would be immune from the effects of the fall of the euro area."

The global financial crisis has entered a new and even more dangerous phase, according to Erik Berglof, chief economist and special adviser to the president of the European Bank for Reconstruction and Development. "All parties benefiting from the collective good of the global system must be prepared to contribute towards its stability." Despite that, it could be premature for China to take the lead in saving Europe, analysts said.

Commenting on media reports that Italian officials have recently held talks with their Chinese counterparts about potential investments in the debt-ridden country, Yu Yongding, a former adviser to the People's Bank of China, was cautious. "China has to wait until it can see a clearer road map from the euro countries for solving the sovereign-debt problem," he told Bloomberg. The nation is not a lender of last resort for "troubled countries", he added.

Many other economists agreed. Shen Jianguang, chief Asian economist at Mizuho Securities Co Ltd, said: "In nature, the sovereign debt crisis in Europe is rooted in the internal structure of the eurozone, and the key to solving those problems lies in Europe," he said. "Investment by other countries will not solve those problems."

Liu Ligang, chief China economist at ANZ Banking Group Ltd in Hong Kong, said the country should wait until the prospects in Europe become clearer before making any decisions. "China's policy should be made after the eurozone takes strong measures, for example, setting up a "firewall" to prevent countries such as Spain and Italy from entering a state of crisis," he said. "It would be more appropriate for China to show its hand then."

Premier Wen Jiabao has expressed China's willingness to help Europe, while Zhang Xiaoqiang, vice-minister of the National Development and Reform Commission, a top policy body, said at the recent World Economic Forum in Dalian that China is willing to buy euro bonds "within its capacity" from countries involved in the crisis.

Their remarks "will have a positive impact on China's image and improve the country's international influence and reputation", Shen said. However, Europe must take effective action to ease the situation first, he added.

Moreover, making investments to help Europe could prove risky, analysts said, making it necessary for China to play safe.

"I think this (investing in European debt) is more risky as a possibility; it implies buying assets which could be substantially risky," said Subacchi.

Analysts said that as the market panic continues to develop the long-term interest rates of debts in European countries such as Spain and Italy could jump as high as 10 percent from the current range of 3 to 6 percent.