Europe Tries to Lure Chinese Cash to Back Rescue of Euro
Published: October 28, 2011
(Page 2 of 2)
But with Europe’s economy verging on its second recession in three years, Chinese officials are wary of taking too big of a risk abroad. China’s own economy is slowing, and there is growing unease about inflation and a property bubble. The income gap between the rich and the poor is widening, posing challenges to the leadership in Beijing.
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Chinese citizens have also been venting anger on the Internet about government investments in Europe that have turned out to be anything but profitable, including billions of euros worth of volatile bond holdings from stricken countries like Spain and Greece. And on a per capita basis China is still much poorer than Spain, Greece or Italy, meaning officials in Beijing could face a popular outcry if they poured resources into rescuing European countries or banks.
“There is a lot of skepticism within the Communist Party, but also in Chinese public opinion, about China sinking money into European reserve assets,” said Jonathan Holslag, the head of research at the Brussels Institute of Contemporary China Studies.
Still, lending a hand to Europe could prove a golden opportunity for China to increase its financial and political clout, and make it more of an equal among giants on the Continent, analysts say.
Although leaders have pledged not to tie political demands to financial investments, Beijing has sought to get the European Union to recognize it as a market economy under global trade rules. Without that status, it is easier for other nations to initiate trade proceedings against China.
China is also eager to persuade Europe to drop its criticism of its currency valuation policies, especially at a time when the United States Congress is weighing legislation that would allow American companies to file trade cases against China on the basis of an undervalued renminbi.
Another longstanding sore point is the arms embargo that Europe and the United States imposed on China after its bloody 1989 crackdown on protesters in Tiananmen Square. The European Union recently considered easing the ban, but the United States has steadfastly objected. More than anything, lifting the ban would signal Europe’s acceptance of China as an equal on the world stage.
It is not clear whether China would push that hard, though. As much as Europe wants the cash, Beijing knows that taking things too far could backfire.
“When you look at the diplomatic agenda, most officials understand that trying to impose political conditions on financial support is not going to work, and might even be counterproductive,” said Mr. Holslag, the Brussels Institute researcher. “If they become too blunt and assertive in attaching a lot of demands, that might lead to a defensive, if not protectionist, stance in Europe.”
Moreover, Europe is China’s largest export market, so it may be in Beijing’s interest to help boost European stability, said an official close to the Chinese government’s deliberations although not directly involved in them.
If a contribution is made to the European stabilization fund, he said, it is likely to be sizable, although smaller than those by the biggest European countries or the International Monetary Fund. What would be crucial, he said, is that Germany, France and the European Central Bank are behind the plan to expand the fund.
“We are looking at China’s pile of reserves with envy, and hope the Chinese are willing to spend something on us,” said Paul de Grauwe, an economics professor at the University of Leuven in Belgium and an adviser to the European Commission. “But they surely don’t want to throw money at this except if they get an ironclad guarantee. If that doesn’t happen, I don’t think we should count on China to help us out.”
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