[That Europe would turn so openly to China to help stabilize the debt crisis shows how quickly the Chinese economic juggernaut has risen on the world stage. Indeed, if China comes to Europe ’s aid, it will signal a new international order, with China beginning to rival the role long played by the United States as the world’s pivotal financial power.]
By Liz Aldermanand David Barboza
Nelson ching/bloomberg news
A guard at the european union's embassy in
The head of the euro rescue
fund met with chinese
financial officials.
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A senior
Chinese official, Vice Finance Minister Zhu Guangyao,
said China — like the rest of the world — was still waiting for the Europeans
to deliver crucial details on how the rescue fund, the European Financial Stability Facility,
would operate and be profitable before deciding on whether to participate.
That Europe would
turn so openly to China
to help stabilize the debt crisis shows how quickly the Chinese economic
juggernaut has risen on the world stage. Indeed, if China comes to Europe ’s aid, it will signal a new international order, with China beginning to rival the role long played by the United States as the world’s pivotal financial power.
“This
would be a tectonic shift,” said Pieter P. Bottelier, an expert on China who teaches at the School
of Advanced International
Studies at Johns Hopkins University . “It would be so important economically and politically.”
Arvind
Subramanian, a senior fellow at the Peterson Institute for International
Economics in Washington , said Europe ’s appeal was another sign that China was already a dominant global power.
“China ’s power is more imminent, broader in scope and greater in
magnitude than anyone imagines,” he said. “For instance, China ’s currency is already having a negative effect not just on
the U.S. and Europe , but on everyone else, too. And the rest of the world
can’t do anything about it. If that’s not dominance, what is?”
In a sign
that the crisis was far from over and that investors were still wary of Italy’s
political paralysis and its huge debt, it was obliged on Friday to pay the
highest rate in more than a decade to sell a new bond issue.
The fear
is that a failure to contain the crisis would lead to contagion in global
financial markets on par with the Lehman Brothers debacle, and deliver a blow
not only to the economies of Europe, but also to the United States and other
major trading partners.
Such a
deterioration would certainly be bad news for China , which could hardly afford to see two of its biggest
markets hobbled at the same time.
Hours
after European leaders unveiled their grand plan, President Nicolas Sarkozy of France called President Hu Jintao to say that Europe was
still looking for some cash, and lobbied Beijing to play a “major role” in helping Europe get its
house in order.
Since the Europe crisis
worsened two years ago, regional leaders once wary of China ’s influence have rolled out the red carpet in hopes that China might be a savior for their ailing economies. China has already made deals to expand its footprint into choice
Western European countries like Italy and Spain . Now, Chinese-owned companies run the biggest shipping
port in Greece . They own highways and other crucial infrastructure, and
are working to snap up other strategic businesses to anchor their presence on
European soil.
But with Europe ’s
economy verging on its second recession in three years, Chinese officials are
wary of taking too big of a risk abroad. China ’s own economy is slowing, and there is growing unease
about inflation and a property bubble. The income gap between the rich and the
poor is widening, posing challenges to the leadership in Beijing .
Chinese
citizens have also been venting anger on the Internet about government
investments in Europe that have turned out to be anything but profitable,
including billions of euros worth of volatile bond holdings from stricken
countries like Spain and Greece. And on a per capita basis China is still much poorer than Spain , Greece or Italy , meaning officials in Beijing could face a popular outcry if they poured resources into
rescuing European countries or banks.
“There is
a lot of skepticism within the Communist Party, but also in Chinese public
opinion, about China sinking money into European reserve assets,” said Jonathan
Holslag, the head of research at the Brussels Institute of Contemporary China
Studies.
Still, lending
a hand to Europe could prove a golden opportunity for China to increase its financial and political clout, and make it
more of an equal among giants on the Continent, analysts say.
Although
leaders have pledged not to tie political demands to financial investments, Beijing has sought to get the European Union to recognize it as a market economy
under global trade rules. Without that status, it is easier for other nations
to initiate trade proceedings against China .
Another
longstanding sore point is the arms embargo that Europe and
the United
States
imposed on China after its bloody 1989 crackdown on protesters in Tiananmen Square . The European Union recently considered easing the ban, but the United States has steadfastly objected. More than anything, lifting the
ban would signal Europe ’s acceptance of China as an equal on the world stage.
It is not
clear whether China would push that hard, though. As much as Europe wants
the cash, Beijing knows that taking things too far could backfire.
“When you
look at the diplomatic agenda, most officials understand that trying to impose
political conditions on financial support is not going to work, and might even
be counterproductive,” said Mr. Holslag, the Brussels Institute researcher. “If
they become too blunt and assertive in attaching a lot of demands, that might
lead to a defensive, if not protectionist, stance in Europe .”
Moreover, Europe is China ’s largest export market, so it may be in Beijing ’s interest to help boost European stability, said an
official close to the Chinese government’s deliberations although not directly
involved in them.
If a
contribution is made to the European stabilization fund, he said, it is likely
to be sizable, although smaller than those by the biggest European countries or
the International Monetary Fund. What would be crucial, he said, is that Germany , France and the European Central Bank are behind the plan to
expand the fund.
“We are
looking at China ’s pile of reserves with envy, and hope the Chinese are
willing to spend something on us,” said Paul de Grauwe, an economics professor
at the University of Leuven in Belgium and an adviser to the European Commission. “But they
surely don’t want to throw money at this except if they get an ironclad
guarantee. If that doesn’t happen, I don’t think we should count on China to help us out.”
@ The New York Times