In These New Times

A new paradigm for a post-imperial world

Euro crisis and China

Posted by seumasach on August 21, 2011

Times of Malta 

21st August, 2011

One can easily un derstand China’s concern when the US financial status downgrade took place a few days ago. Overdependence on its dollar holdings has long been common knowledge. In fact it has long been a vocal critic of the Fed’s quantitative easing programmes and low interest rates. For the simple reason that it is deeply concerned as a main creditor of the US.

But on the other hand, people tend to take an ambivalent approach when it comes to gauging Chinese reaction to the euro financial and economic crisis.

Although some stricken European Mediterranean countries have been reported to have clearly hyped Chinese purchases of their assets to bolster their own creditworthiness, there has been much talk – and even evidence – that China has been buying more European public debt just at the moment when the euro was inching towards an inevitable crisis.

On the other hand, leading Chinese economists and financial wizards have warned repeatedly since early this year that so long as a European solution was not in sight, buying the debt of distressed countries was tantamount to throwing good money after bad.

Certain Chinese elements have even suggested that China should sell its debt holdings in peripheral European countries to avoid being ‘trapped’ by a decision that would diminish their value. But the Chinese were never known for short-termism and Beijing has long made it clear that for political reasons it had to take a long view of Europe’s economic situation.

There is a yawning gap between short-term scepticism and long-term planning. Recent studies such as those by the European Council on Foreign Relations have just stated the obvious: that China is actually buying up Europe.

That its development bank is financing projects in Europe’s periphery much like it does in Africa. And that its purchases of public debt are anxiously sought by deficit ridden EU member states.

This does not mean that China is colonising Europe as Europe colonised Africa at the end of the previous two centuries. After all, Europe is not a source of natural resources as Africa was. But China is now unmistakably a powerful actor within Europe itself.

Many believe China actually has a game changing presence in Europe now. It is reported to have focused on the Mediterranean and south-eastern EU member states most in need of Chinese cash.

Figures suggest Portugal, Italy, Greece and Spain now represent 30 per cent of Chinese investments and trade facilitation in Europe.

Which begs a question far more pertinent in a country specific perspective: Given its positive ‘exploi tation’ of Europe’s soft underbelly, why have Chinese investment and their sovereign funds failed to flow towards Malta despite of our long-standing strong political relations? The same argument is often brought up in the context of the alternative energy sector.

In my view, relations with China are best developed on a purely bilateral basis rather than solely within an EU context.

In fact, some even go to the extent of arguing that an improvement of China’s relations with individual member states of the EU will actually give further impetus to the progressive development of China-EU relations.

China’s purchase of southern EU member states’ public debt – or rather the prospect of it – has been grabbing the headlines since last summer.

After all, it was in June 2010 that China bought Greek bonds as a quid pro quo for a 35 year lease on Piraeus harbour and struck a deal to finance the purchase of Chinese ships.

While, on the other hand, this time last year it had also announc ed that it would buy one billion euros of Spanish bonds.

When the Chinese premier visited key European cities earlier this summer he sent one important message: that a European recovery was vitally important for China.

China is also becoming increasingly present in Europe through direct investment in companies. And this is indeed the area where one would or should expect to see some movement and momentum in our country’s regard.

It is evident that the Chinese government has long given the green light to major takeovers in Europe. Vehicles previously used to serve mostly foreign firms investing in China are now also being used by Chinese companies to buy European assets.

This does not mean we should suddenly expect China to solve all our problems or for us to become overdependent on it.

But China now should and must be part of not just our but every country’s calculations in the EU in trying to overcome the economic crisis.

Mr Brincat is a member of the Standing House Committee on Foreign and European Affairs.

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