China’s leaders cautious on EU rescue plan
BEIJING — When President Hu Jintao travels this week to the glamorous French resort of Cannes for a summit of the world’s 20 leading industrialized and developed nations, it should be China’s moment to swagger on the global stage.
European leaders have agreed to a $1.4 trillion rescue fund to stop the debt crisis in Greece from bleeding into other shaky euro-zone economies — and they are looking to China to foot part of the bill. And while the United States and Europe come to the summit grappling with problems of huge debt and anemic growth, China’s problems are the stuff of envy: what to do with a foreign reserve stockpile of $3.2 trillion and how to slow down growth to keep the its economy from overheating.
Yet far from swagger, China’s leaders appear to be approaching this seminal moment with caution and outright concern.
China’s leaders will contribute to Europe’s bailout fund, economists and other analysts here said. But they are doing so mainly because they have little choice, since a continued economic crisis in Europe is bad for China, too.
“It’s not only about saving Europe, but the U.S. and the whole world, including China itself,” said Yi Xianrong, director at the financial research center of the Chinese Academy of Social Sciences. “A stable global financial system is also in China’s own interest.”
Patrick Chovanec, who teaches at Tsinghua University’s school of economics and management, agreed. “It may seem like an all-powerful creditor and weak, supplicant debtors,” he said. “But the debtor countries and the surplus country are locked in a mutual embrace that is problematic for both of them.”
Chovanec compared the situation to that of a small-town shopkeeper who has to continue letting his customers build up credit, for fear that if he doesn’t, they will stop coming and he will be forced out of business.
China’s ability to assist Europe — and to bankroll the U.S. debt through the purchase of Treasury securities — comes from its huge surpluses. The European Union, China’s largest export market, has a trade deficit with China of about $230 billion.
China’s leaders also are moving cautiously because they are acutely aware that Chinese public opinion is firmly against helping bail Europe out of its debt crisis. Comments on the hugely popular
Twitter-like microblogging sites, called weibo, offer a window into the popular sentiment.
For China’s netizens, Europeans enjoy a rich lifestyle with lavish early-retirement packages and several weeks of paid vacation each year, while the majority of Chinese can barely earn enough to make a living. So why should China’s government be using its hefty reserves — the people’s money — to help Europe instead of improving living conditions at home?
“The root of the heavy European debt is excessive welfare,” wrote one weibo user under the name “Turbulence and Change.” “They have a large number of lazy people. Even if China doesn’t offer a hand, Europeans still won’t live worse than Chinese. Furthermore, no European will die of hunger.”
Some analysts said the netizens may have a point, and one that the leadership is aware of. That is, the best way China could help Europe and the global economy in the long run is to return some of its huge reserves to Chinese consumers, which would increase their purchasing power — a wrenching long-term change that China’s leaders have already publicly pledged to make.
That means appreciating the currency, the renminbi, so Chinese can buy more European goods. It also means further opening China’s market to more European products, and using some of the foreign exchange reserves to purchase troubled assets in Europe, as well as the United States, that help put people back to work. More workers in Europe means more Chinese exports.
For the short term, however, China does seem poised to help, if for no other reason than it maintains about a quarter of its $3.2 trillion of reserves in euros. China will keep buying European bonds, economists say, simply because there is nothing else to do with that money.
China’s leaders have said they are awaiting details of the new European Financial Stability Facility before making any firm commitment. The chief executive of the fund, Klaus Regling, came to China last week and met top finance and central bank officials, but got no guarantees.
But most analysts think China will at least tacitly use its contribution to the rescue fund as a chance to squeeze concessions from Europe on some long-standing issues. For example, China wants to be officially recognized as a “market economy” before the World Trade Organization, which would ease some restrictions on Chinese companies and alter the way their products are priced.
China would also like Europeans to ease public pressure on the value of the currency.
“A stable European economy is a good thing for China’s economy,” said Liu Yuanchun, a professor in the economics school of Renmin University. But, he added, “it’s also a chance to gain bargaining chips on negotiating granting China market economy status. And it means more economic cooperation, rather than conflict, between China and Europe.”
A contribution of $30 billion to $70 billion would be “a very small proportion of China’s foreign reserve fund,” he added, and could greatly improve the country’s strategic position. “The relief fund may act as a stabilizer for the European financial market,” Liu said, “but the European economy is doomed to continue declining.”
Researchers Liu Liu and Zhang Jie in Beijing contributed to this report.