China Has To Throw E U Lifeline So It Can Get One Back
Post on: 2011-11-02 By: admin
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Gordon G. Chang, Contributor
Will Europe Rescue China?
12 comments, 0 called-out
Image by Getty Images via @daylife
All eyes will be on China at this week’s G-20 meeting in Cannes. The expectation—or at least the hope—is that Beijing will contribute to Europe’s bailout fund, the European Financial Stability Facility. The Greece-rescue plan announced on Thursday in Brussels calls for an increase in the size of the EFSF from 440 billion to a trillion euros.
At the press conference announcing the deal, French President Nicolas Sarkozy said that the EU would like support from Beijing, and he called his Chinese counterpart, Hu Jintao, to ask for help. EFSF chief executive officer Klaus Regling immediately flew to Beijing and held consultations with officials late last week.
In response to the overtures to China, President Hu praised Sarkozy and European leaders for showing “determination” but did not promise support for their plan. Then, Zhu Guangyao expressed Beijing’s reluctance after meeting with Regling. “We need to wait for the technicalities to be clear and also to carry out serious studies before we can decide on investment,” the finance vice-minister said.
Finally, Xinhua News Agency ran a commentary today explaining Beijing’s position. “Amid such an unprecedented crisis in Europe, China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise,” the official organ stated.
There are many reasons for Beijing not to support Europe. First, Thursday’s plan is obviously just another temporary fix. There were “comprehensive” and “final” plans announced this March and July, and it may be only months before European leaders will need to come up with still another one.
Second, the Europeans are not pledging their own resources. After all, they merely said that the EFSF would be “leveraged,” in other words, eurozone leaders will be looking for others to chip in 560 billion euros. They refused to commit their own cash or even issue sovereign guarantees.
Third, Europe does not need China’s money. The continent is capital-rich and a net exporter of capital. “The reason peripheral European governments cannot get financing is not because there is a lack of capital or liquidity,” explains Peking University’s Michael Pettis. “They don’t need Chinese capital. They need someone foolish enough to lend money to countries that probably won’t repay.”
Chinese leaders are undoubtedly looking for ways to avoid throwing good money after bad. Yet, directly or indirectly, they will end up “buying rubbish bonds” and committing funds to the EFSF.
Why? Because Europe is bailing out China as much as China is bailing out Europe. Maybe even more.
For one thing, perhaps as much as a quarter of China’s $3.2 trillion in foreign exchange reserves is in euros, the result of Beijing’s ill-conceived goal to lessen dependence on the greenback. Therefore, it should come as no surprise that Chinese central bankers have already invested in EFSF bonds that were issued to support Ireland and Portugal. As a practical matter, China will do what it can to make sure its existing euro investments do not precipitously fall in value.
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Not much to disagree with Gordon’s rehash of what is already known. China will have to keep the Euro alive but not anytime soon.And she will extracta premium price and iron clad guarantees for taking on the risks.China will also insist on the other BRICS countries participating in the bailout even if the others can contribute token sums.That way Eurozone leaders cannot attack, finger wag, China on political and economic issues without also attacking the others by implication.
A much more important consequence of investing billions in Eurodollars is the amount not invested in USD paper.All it needs is for China to redirect a bulk of its current and future trade surplus earnings into the Eurodollar, over USD 250 billion annually, and the US will promptly cry uncle. China cannot be accused of currency manipulation as the current USD3.2 trillion will remain where they are.And the US can hardly object to China supporting the Eurodollar for that is the stated goal of the US political and financial sectors.
Interesting times in the new year indeed.
Gordon G. Chang decides to become economist and analysis the trade policy.Unfortunately, he is decidedly unqualified, just like that he is not qualified to be China or North Korea expert.It is what’s wrong with nternet age that everybody can post something on the web.
Another useless post by Gordon Chang.
You scratch my back and I’ll scratch yours.
Gordon Chang, your view is not balanced and has been consistently wrong. All of your articles are anti-China.I believe you can be more relevant if you can point out strengths and weakness.
As a place for investment, Europe and USA are not in a better shape than China.
You keep on saying Chinese government is incompetent, would you say you could do a better job than President Hu Jintao or Premier Wen Jiabao in leading the country. What solutions you got? You give no solutions but criticism. Living in this world it is easy to find fault in others, finding solution is difficult. When top Hedge Fund managers like George Soros, one of the richest billionaire like Bill Gates and many other top CEO’s think that the 21st century Chinese government is doing a better job than US government in delivering economic growth, would you say your voice carry more weight than them? Those people have achieved much more success in their life than yours.
I don’t like the idea of democracy until a country reaches USD $15,000 GDP per capita with a high level of education. Singapore is a proof that democracy is a secondary objective to economic growth. The Four Asian tiger has an authoritarian history until they reach USD 10,000 to 15,000GDP per capita
It is ashamed that for someone with a Chinese blood like you would constantly berate China. If China is a weak country with stupid people, we would probably be looked down all over the world. Chinese is a great race, take a look at what we have done. The overseas Chinese is a minority but dominated South East Asian economy in the absence of proper property rights and rule of law. Singapore or Hong Kong, city with majority Chinese population has higher concentration of millionaires than Switzerland (the western developed country that benefits from easy money). Singapore with 5 million population has 10 times the number of millionaires of Israel with 7.8 million population (the Jewish race whom everyone thinks is smart). I am sad to see you join the growing number of Western pundits who thinks that Chinese are a stupid race, who cannot innovate, not entrepreneurial, cannot think out of the box. The truth is we can create wealth second to none under a right system.
He seems like a stooge (which happens to sound “official” because of his Chinese heritage) set up by the Western media to berate and belittle China.
How can someone who call themselves Chinese be so virulently anti-China? What a pathetic bullshit article.
China needs to be berated since it is still ruled by the philosophy of Karl Marx–who wasn’t Chinese.China loves capitalism as only a Marxist can love an economic system, but it retains Marx’s commitment to thought control.Marxist capitalism is still Marxism.It is an enemy of free thought and therefore of science.Democracy is the political realization of the scientific method.
Dude, I love to revisit these posts in 2030 when China becomes a full-fledged Superpower.
You and Gordon Chang are a bunch of idiots.
The author never said anything about the Chinese being a stupid race.Your insecurities are getting hold of you.China has done a good job of building national wealth and growth but don’t get carried away.China has many problems too and it mainly has to do with the development of it’s humanity: 1)they don’t care much about people’s rights and freedom, 2) they are often cold and heartless – evidenced by the murder two weeks ago when two truck drivers ran over a 2 year old girl and everyone walked right be the poor helpless girl and nobody tried to help her.The murderer/driver said, “it only costs $1500 if I kill her, but if she lives it will cost me 10 times more so I ran over her again, 3) selfishness and focus only on immediate family is out of control – nobody tips or gives money to anyone outside of their family.Massage girl in Thailand told me for two hours massage Chinese people usually give 5 pennies for tip, even more than Israel people.This was her words, not mine.I think people in Taiwan and Hong Kong are more more well-rounded humane people because the influence of the outside world has positively influenced them.
The euphoria of the European press is quite premature, for there is a big disappointment coming up.Of course the Chinese will make positive gestures because Europe is their best customer.But they will not come as benevolent and generous saviours and healers of the moribund Euro patient.Instead, they will come as cautious investors demanding securities and solid guarantees. Business is business.
Wishful non-thinking to believe a crisis of this magnitude will somehow hurt China more than Europe itself – necessitating a “win-win” situation in which China throws liquidity at an insolvency problem.
Leave it up to Gordon G. Chang to take a European crisis, and spin it into an anti-China bashing article.
Gordon Chang is an idiot. My respect for Cornell has gone down considerable.
Wishful non-thinking at it’s finest.
Great Article.This guy Chang really knows his stuff and understands second and third order effects.Because of increased globalization most countries are intertwined in this crisis caused by complacency and lack of motivation in EuropeUS, and by underpaid slave labor in China.
As the world progresses the winners and losers are not going to be the countries or continents, its going to be individuals from all countries, as the spread between wealthy and poor gets wider.Along with this will come the next big creator of violence and crime in the world – the protestor who is unhappy that he or she isnt smart enough to be wealthy, or that they were born into a country/family that has no chance of escaping poverty.It will be these worthless Occupy Wall street crackpot types that unhinge the world over the next few decades, with a sprinkle of Islamic terrorism thrown in.The smart, savvy, and sometimes lucky folks with money with still be represented in all countries from Brazil, to Russia, to the US to China, to Europe.
Thus, even though we like to maintain our nationalism, it is very probable that nationalism and patriotism will continue their decline.So get over your sensitivities to Chinese critical insight and go marry a white or black girl and create a mixed race kid.That’s the inevitable outcome on planet earth.
I write primarily on China, Asia, and nuclear proliferation. I believe we will see discontinuous change around the world in the near future, so I'm not into making long-range personal plans. I am the author of two books, The Coming Collapse of China and Nuclear Showdown: North Korea Takes On the World.
The author is a Forbes contributor. The opinions expressed are those of the writer.
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Article original from: http://www.forbes.com/sites/gordonchang/2011/10/30/will-europe-rescue-china/?feed=rss_asia
