Last update: 09-Dec-2013 11:04 am
Monday, December 09, 2013
Trinidad & Tobago Guardian Online
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Could China help Europe conquer its debt woes?
As European leaders face another tumultuous week of crisis talks, austerity cuts and bailout decisions, an offer of help will be fresh in their minds. Last week, China suggested that it might be prepared to help Europe by acting as a buyer of last resort by making a major purchase of euro-denominated bonds. Markets are hoping for more details when officials from the Bric countries—Brazil, Russia, India and China—meet in Washington on Thursday to discuss steps to offer support to the debt-ridden euro area. But should and could China come to Europe’s rescue in the continent’s escalating debt crisis?
Certainly, China has the means. Its foreign exchange reserves are the world’s largest at US$3.2 trillion. China also has a vested interest in ensuring the global economy is stable and that demand for its products in Europe remains strong. A weaker euro would make Chinese exports more expensive for Europeans. But so far, says Dong Tao, Asia economist at Credit Suisse in Hong Kong, there is little evidence that the debt crisis has hurt demand for Chinese exports. “My view is that China can and will buy a little more euro-denominated bonds as a token gesture,” Tao says. “If there were signs of a slowdown in China, you could see a more sizeable offer of help [for Europe], but at the moment, there is clearly not a slowdown.”
Helping the indebted euro zone would also allow China to achieve other goals—few countries extend financial support without some strings attached. Last week when offering to help Europe, Premier Wen Jiabao said he wanted Europe to treat China as a full-market economy, which could boost exports otherwise hindered by tariffs. An offer of help could also help China in its quest to buy other assets in Europe that have so far been viewed with disquiet. A recent US$85.8 million deal by a Chinese businessman to buy a remote, 300-square-kilometre Icelandic farm to build a leisure resort was viewed in some quarters as part of a broader Chinese strategy to build influence in the resource-rich Arctic. China also has port projects in Piraeus, Greece, and Naples in Italy that have raised eyebrows.
Within China, many question whether a country where many still struggle to put food on the table and a third of the population still lives on less than US$2 a day should help out Europeans with their arguably easier lives. On Web forums, some Chinese are sarcastically wondering why “those who eat congee and pickles are being asked to help those who feast on steak and French wine.”
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