UPDATED: December 5, 2011 NO. 49, DECEMBER 8, 2011
China is not the answer to Europe's crisis, neither will it turn its back
By JIANG SHIXUE
Before Spanish Prime Minister Jose Luis Rodriguez Zapatero left office, political fallout from the European debt crisis had already claimed four European prime ministers—George Papandreou of Greece, Silvio Berlusconi of Italy, Jose Socrates of Portugal and Brian Cowen of Ireland. All were forced to resign due to intractable economic problems.
Power shifts in these countries undoubtedly hurt market confidence, which made the crisis even more challenging. But new governments also provide new opportunities and possibilities for these countries to find solutions. For example, international media and the EU both believed that only if Berlusconi, who was not interested in reform, stepped down, could Italy carry out bold reforms to revive its economy. Papandreou was considered to be incapable of solving Greece's debt crisis. Worse still, almost all his anti-crisis measures were opposed by the Greek people.
The economic policy of the new Portuguese Government has not been proved effective yet. But the new Irish Government seems hopeful in leading Ireland out of its crisis. The EU predicted Ireland's economic growth in 2011 is expected to reach 1.1 percent. In 2010, its economy shrank 0.4 percent. The governments of Italy, Greece and Spain are too new for the international community to judge their future performance.
Interdependence
Given differences within the EU and the ripple effect of the debt crisis, crisis-ridden European countries expect China, a rising power on the global stage, to throw them a lifeline. But opinions on China's role vary.
Some consider China as the savior of the debt crisis. They insist that China, which is an economic giant with foreign exchange reserves of over $3 trillion, has the ability to help European nations get out of the debt crisis.
This theory mostly is based on exaggerated media reports throughout the world. For example, an article published in The Economist in April pointed out that foreign exchange reserves have made China a "triple trillionaire." The article cited statistics saying the world's projected oil output in 2011 is $3.41 trillion, all farms in the United States are valued at $1.87 trillion and the sovereign debt of PIGS countries—Portugal, Ireland, Greece and Spain—amounts to $1.51 trillion.
Although China's economic strength has greatly increased since it adopted the reform and opening-up policy more than three decades ago, it is still a developing country. Measuring with the international poverty line, China has more than 200 million poor people. Senior citizens in China do not enjoy lavish pensions like their European peers. Also, China's foreign exchange reserves are created by exporting goods produced by low-paid laborers at a high environmental cost. It is unrealistic for China to save European nations with its hard-earned money.
Some have pointed out since indebted nations in Europe have yet to carry out effective reforms, China should not say yes to whatever requests it is confronted with. European nations got themselves into trouble through wrong policies, so they must find their own way out.
At a time of economic globalization, nations have become more interdependent than ever. When some nations are in trouble, others should do what they reasonably can assist them instead of standing by.
China and Europe have established a comprehensive strategic partnership. As a strategic partner of the EU, China is obliged to provide assistance to European countries mired in the debt crisis. It is not because China is a "Good Samaritan," but because it values friendship with Europe, that China decided to purchase government bonds of Greece and other European nations. Moreover, China can diversify its foreign exchange holdings by purchasing European government bonds.
Some, like Reuters columnist John Foley, insist that since China wants the EU to recognize China's market economy status in exchange for assistance, its rescue could become "a friendly blackmail of the EU." Foley said in an article that Chinese Premier Wen Jiabao's speech at the World Economic Forum's Annual Meeting of the New Champions in Dalian, northeast China's Liaoning Province, on September 14 "was unusually blunt about what he expects in return: to be named by Europe as a market economy." "That would cost Europe little—but that doesn't mean it should agree," he said.
Offering assistance to European nations and the EU accepting China's market economy status are unrelated. Foley totally misunderstood Premier Wen's speech. China will never loot a burning house, nor will it turn away a dying man.
China is not the answer to Europe's crisis, neither will it turn its back on Europe. It is also ridiculous to say China's assistance to the EU is "friendly blackmail."
Various means
To "save" means to help others out of trouble, or to prevent a bad situation from deteriorating. There can be two ways for China to save indebted European nations. One is to pull them out of the debt crisis and help them resume economic growth. The other is to provide assistance to keep them from sinking deeper. Considering the current situation, the first way clearly is naive, while the second one seems more rational.
Apart from purchasing the government bonds of European nations, China can take other measures to help Europe. For example, it can import more European goods and services to increase these countries' export revenue. China can also inject more capital to the International Monetary Fund (IMF) so that the IMF can have more financial resources to bail out debt-ridden nations. Moreover, it can enlarge direct investment to Europe. Greece, Ireland, Italy and Spain have all designed privatization plans to cut fiscal deficits, presenting opportunities for Chinese investors.
China's good intentions, however, are not always welcomed in Europe. In November, Icelandic authorities rejected a Chinese businessman's plan to build a tourist resort in Iceland. European critics believed his investment could let China get a strategic foothold in the North Atlantic. China was thinking about "buying up the world," said Icelandic Interior Minister Ogmundur Jonasson.
An article in The Economist in June pointed out that China's investment makes Europeans nervous because they feel that China intends to buy Europe's jewels with its giant savings at knock-down prices.
In July, the European Council on Foreign Relations criticized enlarged investment to Europe from emerging market economies, including China, in a report titled The Scramble for Europe.
Confidence is extremely important when facing a crisis. President Hu Jintao said China believes the EU has the ability and wisdom to conquer current difficulties. Premier Wen also said China is willing to help Europe cope with its debt crisis. Chinese leaders' attitudes undoubtedly will bolster Europeans' confidence to overcome the crisis.
The author is deputy director of the Institute of European Studies at the Chinese Academy of Social Sciences
