Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Key Trends in Globalisation (Reporter)
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

The Eurozone crisis and China

% of readers think this story is Fact. Add your two cents.


As Europe’s debt crisis intensifies again an interesting international aspect is the policy choices this poses for China.

It is a further sign of the growing international effect of China’s economic strength that it had already become part of the discussion on how to resolve Greece’s specific debt crisis – which is why Chinese premier’s Wen Jiabao’s recent European visit received even more extensive than usual coverage in the continent’s media. The new twist of the Eurozone’s crisis, with Italy being drawn in, once more shows the careful calculations that have to be made by China’s economic policy makers.

Overall economic relations between China and the European Union (EU) are clearly advancing. During Wen Jiabao’s visit to Germany contracts worth $15 billion were signed. Germany now exports more to China than to the US. In Hungary, which Wen Jiabao also visited, China’s announcement that it would include that country in its international bond purchases was (with some hyperbole) described by Hungary’s government as ‘a decision of historic significance.’ In Britain, where only $2 billion of contracts were signed, prime minister Cameron appears to have soured relations by attempting to lecture China on human rights. The Financial Times reported: ‘a senior Chinese official told the… FT that the UK “is losing its standing in Europe as far as China is concerned and that Britain is now viewed less favorably in Beijing than Germany, France, Italy and Spain.”’

The Economist positively summed up its analysis of Wen’s visit, and of overall EU-China relations, in an editorial: ‘Investment bankers there [in Europe] are now sure to dial Chinese clients if they hear that a firm is a possible bid target. China’s banks are rapidly increasing their presence in Europe… Chinese direct investment abroad has increased faster in Europe than in any other region.

‘The Europeans get more than just money. A Chinese partner is a good way for a European brand to gain access to the world’s soon-to-be-biggest economy. Ask France’s Club Med, which now has a big Chinese shareholder and recently opened its first holiday resort in the country. Or CIFA, an Italian construction equipment maker whose products are now marketed as a premium brand by its Chinese owner. Or Sweden’s Volvo, which was bought by Geely, a Chinese carmaker, in 2010 and now calls China its second home market.’ The magazine concluded its editorial: ‘In welcoming China, Europe is swimming with the tide of history. America is struggling against it.’

However the Eurozone crisis is a specific issue within this context regarding which China’s government must be doing careful analysis. At least one of the Eurozone countries is going to have to stage a partial default. For example, Greece’s debt next year is projected to reach 159 percent of GDP, its interest rates are 15 percent above German equivalents, and its balance of payments deficit is 5.5 percent of GDP. No serious economic recovery is taking place nor is it likely to under the bailout packages signed with the EU. This combination is totally unsustainable. A starting point has to be that the present bailout packages are not going to work and in the end Greece, and quite likely some other countries, will have to partially default on its debt – to the disadvantage of its creditors.

The overwhelming majority of international analysts are aware of this inevitable default. They are merely divided between those who believe default should occur now or whether it would be better to postpone it. The proclamations by European governments that even partial default is ‘unthinkable’, which has been shown to carry little credibility in markets or among serious analysts, merely means in practice they are going down the road of postponement.

The purpose of this postponement and what is taking place during it is clear – and it is this which brings in China. The core process in the postponement is giving time for European and other banks to exit from holdings of Greek debt and transfer it to governments – which in the real world means taxpayers. The latter will therefore pick up the eventual bill when the partial default comes. This is the reality behind strong public opposition to the European Union’s bailout plans not only in austerity-hit Greece but in creditor countries such as Germany, and it is why Angel Merkel has been periodically threatening to try to make the private sector pick up at least some of the bill.

The eventual division of losses purely between European banks and European taxpayers evidently does not affect China directly financially. But China is being asked to pick up some of the bill when the eventual default comes. The mechanism of this is that a default will have consequences not only for the country concerned but across Europe. China’s government is being asked to buy, and indeed is buying, bonds in some European countries on terms that may worsen after a default. China is, of course, directly financially affected by this.

From an economic point of view China purchasing European bonds, even with knowledge that there will be a partial default, may be a sensible step. It may be that the overall benefits of participating in a deal to postpone default, which presumably will also make it more orderly, outweigh any direct financial losses China will incur. Certainly it would be viewed favorably as very responsible behavior by a number of European governments,

But there are several imponderables. First are China’s policy makers fully aware such a partial default will not be avoided? Second, while China has large foreign exchange reserves it also has a need to utilize these efficiently. The overall benefit must outweigh any loss. China, entirely rationally, has no time for approaches such as Cameron’s which consist of wanting China’s business while delivering lectures.

Given the US would gain benefits from the collapse of the Euro, as it would remove an international alternative to the dollar, and will therefore not significantly aid the Eurozone governments, China must weigh both pluses and minuses of any help. While the central drama is in Europe itself we can be sure developments in the Eurozone are being carefully followed in Beijing.

John Ross is currently Visiting Professor at Antai College of Economics and Management,Shanghai Jiao Tong University, where he leads research on globalisation and on China and the international financial crisis.
Check out his blog: http://ablog.typepad.com/keytrendsinglobalisation/ , or follow him on twitter @JohnRoss43

Read more at Key Trends in Globalisation


Source:


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.