Written by Guest Author Yehya El Oueini
This article seeks to understand the real reason behind China’s attempts to bail Europe out from its current debt crisis. Firstly; the article will show the different investments and business development decisions recently made by China in different European economies. Secondly it will highlight how China is directly affected by the current euro crisis. Finally, it will reach a conclusion regarding the real drive of China today in bailing out Europe.
‘China as a savior for Europe’
Research indicates that China has made an investment worth US$3 trillion in the European economy after the Chinese Prime Minister, Wen Jiabao, visited the European Union in July 2011.It was indicated as well that 23 corporations in the UK would receive funds from China. While in Berlin, Wen Jiabao reported that China was willing to cooperate with the European Union and would be at the forefront to help it solve some of its problems. Beijing also offered to assist Portugal in purchasing €4 billion to €5billionworth of bonds. On the other hand, China chooses to acquire €6 billion worth of Spain’s state debt.
Moreover, according to the European Council on Foreign relations, China has investment in development banking projects in Europe just as how it done in other continents. It is held that China will utilize its sovereign funds to acquire more investments in Europe while taking up more international assets managed by weaker European economies.
Impressive! China is without any doubt strongly investing in different European nations and they are insisting on ‘bailing out’ Europe and reinforcing their role as a contributor to worldwide economic stability. But, is that their real role? Isn’t this just an exaggerated view of media reports and observers in favor of the Chinese hegemony?
‘European slowdown is affecting every sector in China’
What is often overlooked is that EU actually serves as one of the largest trade partners with China and it annually records a trade turnover worth €400 billion.
According to Bert Hofman, the world’s Bank chief economist, China sends one fifth of its exports to the European Union. In fact, the European slowdown is affecting every sector in China! In Southern China, 450 small and medium size companies have closed in the past 10 months, mostly firms making clothing and toys, as export orders have significantly decreased.
Moreover, the crisis had an effect on the foreign capital flowing into China. According to the Agricultural Bank of China, investment in China from the 27 EU countries decreased from 10.71% in 2010to 1.05% in 2011 from the January to October period.
According to Bradsher, Chinese exporters to Europe experienced problems as a result of the crisis and a threat to exports from China. The Financial Times states that the euro’s crisis has already caused billions of losses for China to the value of the US$2.4 trillion in foreign exchange reserves.
Considering unstable fluctuations of the Euro against Chinese Yuan; it has been mentioned that when the Yuan rose against the euro this affected the export markets for China with one of the primary problems being the cost pressure coming from EU region.
‘Acting out of personal and not collective interest’
Finally, in as much as China is among the world largest and fast-growing economy, it does not mean that it is invulnerable to the current debt crisis in Europe. It is, in fact, particularly more susceptible to this downturn than any other player.
Thus, in conclusion, the intention is not to act in the benefit of collective interests, but rather with personal and selfish interests. They are actually worried about the future of their economy which is highly interrelated with the European economy. So, the right question to address today should be: “Will China be able to save itself from an economic crisis by bailing out Europe today?” What if it doesn’t? Are we heading towards another worldwide depression? The upcoming few weeks will reveal many indicators regarding this question.
By Yehya El Oueini