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Why China is helping the EU

Why China is helping the EU
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With much of the world overstretched by debt, western eyes are looking eastward to China to keep the battered system afloat. Here is why China might want to help:

The Communist People’s Republic of China is second only to the United States in economic power. But the US has financial problems that leave it hamstrung, and the EU is paddling for all it is worth to keep its single euro currency above water.

China has shored up the euro zone lately, appearing as a saviour, red carpet visitors saying: “We’ll buy your debt.” Beijing kept the ravenous markets from driving the euro boat onto the rocks. Europe buys a great portion of China’s exports. Conventional thinking is it hardly wants the euro zone to sink.

On the contrary, China has invested deeply in it. China has the pockets for that. Its GDP is in the realm of six trillion dollars (or roughly 4.4 trillion euros). Its growth is now around 10 percent per year. In the past three decades its share of global exports has shot from one to 10 percent. And 28 percent of China’s exports ship to Europe.

It has some $2,800 billion in foreign exchange reserves. It can afford infusions of 5.6 billion euros worth for struggling Spain and five billion for Portugal. By some estimates, China holds seven percent of the European debt. Its contracts in Europe over a six-month period are tagged at 47 billion euros.

Pragmatic is how the Chinese are seen. The Red Giant and Old Europe are privileged trade partners. Neither side seems interested in letting their friends down. It would harm business.

The trade exchanges and investment have political and diplomatic spin-offs, too. Beijing would appreciate support for its market economy status bid with the World Trade Organisation, officially aiming for 2016 to nail that down. If it got it earlier, it would eliminate costly tariff payments.

China may be rich, but its own risks at home include high inflation and local government debts. These exceed one quarter of the country’s total output, and some of the debts have gone sour.

Seeking stability, to keep its own businesses thriving and to feed and house people with low incomes, pundits say that no matter what the rest of the world wants, China will act conservatively.

China’s euro sensitivity
China’s National Day traditionally launches a period of celebration of past glories and present-day achievements. Will things be different this year? euronews asked Dr Robert Laurence Kuhn, author of ‘How China’s Leaders Think’, and our regular commentator on Chinese affairs.
Nial O’Reilly, euronews:
Dr Kuhn, with new concerns over the economy, inflation and debt worries, there seems less for the leadership to celebrate this year.
Dr Robert Laurence Kuhn:
We are within one year of the 18th party congress and this run-up period is a very sensitive time, particularly because there will be a generational change of leadership immediately following that congress. So this is a very sensitive time in China, when you have this transition of leadership;and it’s not just the most senior leader, it’s the entire cohort of leadership of the country that is changing. But diplomatically 2011 has been a much better year than 2010, which was quite a disastrous year on the diplomatic front. Inflation however, it the really critical point. China is going to be more worried about controlling inflation – and there are questions even about the quality of the numbers that they have, what’s the real inflation rate? What are people feeling? This is of primary concern. That’s why the cooling of the economy is not so bad in China, because the leadership is more concerned about inflation.
China, as you’ve mentioned, is concerned with things further afield and it’s been a big supporter of the EU during the current debt crisis, but it’s recently signalled it wants Europe to recognise it as a market economy. Is it payback time? Can we expect some hard bargaining at next month’s China EU trade summit?
I think China wants to be appreciated. What’s happening Europe is critical for China. China’s doing that (helping Europe) for it’s own good and it would like to have the world recognise that it’s economy has been very successful. Maybe it can’t solve all the problems of the world; and sometimes the rest of the world exaggerates the impact of China, be it positive or negative, in terms of what it can do. But indeed, in terms of world growth – if you look at the growth rate in China,even if it slows to 9 percent – is of enormous benefit if you compare it to what’s happening in the United States and Europe.
It does have difficulties with Europe, but there’s also more evidence of China’s complex relationship with the US. In the coming days the Senate will vote on legislation to crack down on what the Americans see as China’s unfair currency practices. Will Beijing retaliate?
What I fear is taking retaliatory or aggressive action about China in a coming election year will be the only thing the Republicans and the Democrats can agree upon. That would not be a wise decision in my opinion but it would be good politics, people may think in Washington. If that occurs – and I hope it does not – China will retaliate, but it will do so in this signalling way that they want to rachet down any permanent damage or any immediate impact of an escalation. They have to retaliate they can’t face their own people without some sort of a response, but it will not be a major response.