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    The Week

    Why China should bail out the eurozone: 3 theories

    By The Week's Editorial Staff | The Week – Wed, Feb 15, 2012
    The EU is practically begging for a financial lifeline from the world's most populous nation. China isn't eager to get involved — but maybe it should be

    As the European debt crisis lurches into its third year, super-rich China finds itself with cash-strapped European suitors lining up on its doorstep. With $3.2 trillion in foreign exchange reserves, China appears to be in prime position to provide a lifeline to the debt-beleaguered continent. Prime Minister Wen Jiabao recently pledged China's aid, but his vague promise didn't entail any firm commitments, and many Chinese officials are still wary of exposing the country to risky bonds from Greece and other debt-burdened European nations. But maybe they should think again. Here, three reasons why China would be wise to rescue Europe:

    1. If Europe falters, it would cripple China's economy 
    China's economic growth could be cut in half if the eurozone enters a recession, warns the International Monetary Fund. With annual trade valued at 560 billion euros ($730 billion), Europe is China's largest trading partner. In addition, Chinese business investments in Europe more than doubled from 2010 to 2011. Propping up Europe now could forestall a far-more-expensive economic collapse down the road.

    SEE MORE: Will debt downgrades doom the eurozone recovery?

     

    2. China could gain political leverage over the West
    In "desperate need of financial support," Europe might be willing to make big political concessions to China, writes Thomas H. Naylor at CounterPunch. For instance, as a prerequisite for aid, China demand that the West quit threatening Iran over its nuclear program. Such a move would "effectively checkmate" the U.S. and Israel. "All of this makes Washington very nervous," and the U.S. "does not relish the thought of the EU becoming financially dependent on Beijing."

    3. China could also bolster its clout at the IMF 
    China should "pony up," writes Wayne Arnold at Reuters, but buying European bonds directly is "too risky." Instead, China should funnel its aid through the IMF — and thereby earn a "bigger role at the world's currency watchdog." The U.S. dollar is still the world's reserve currency, which leaves China vulnerable to the whims of U.S. monetary policy. China views the IMF as the "best counterbalance to such tides," and winning more influence at the powerful organization ought to be a "no-brainer."

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    19 comments

    • David T.
      David T.  •  Kingston, Rhode Island  •  3 mths ago
      If Europe gets saved just end up right back where we are now in a generation. Let them collapse and maybe they'll learn their lesson.

      Same goes for us in the US, btw.
    • Eleatic Stranger
      Eleatic Stranger  •  Hanoi, Vietnam  •  3 mths ago
      What sense does it make for a good business person to invest in bad businesses? In particular, why should a business invest in other businesses that have no benefit to its own? China should not throw away money to European beggars, which are a totally corrupt group of bankrupt old feudal empires that are inefficient and morally depraved.

      Why China should NOT bail out the Eurozone economies:

      (i) China did not get rich by propping up lame ducks, such as European economies; (ii) If China props up bankrupt Europe, it will be saddled with bad debts that are not its own; (iii) When Europe goes completely bankrupt in about 2 years time, it will pull China down too; (iv) China will become more powerful by supporting good economies, not bad European ones.
    • Spud McCall
      Spud McCall  •  3 mths ago
      China is slow when it comes to making "snappy decisions" that obligate them to long term commitments. But when it comes to selling and delivering their goods to all corners of the 'GLOBE" they can make a decision YESTERDAY! And have it ready for shipment the next morning. China is a rock; just like in poker: China usually only bets on sure things.
    • howie1
      howie1  •  Cleburne, Texas  •  3 mths ago
      Well lets see, we prop up europe and most of asian countries after ww2 and well into the 1980's and what did it get us from europe but contempt. China while being an advisary most of that time didn't have blind eyes to the end result. They got the business and we got the bill.
    • bigtisas
      bigtisas  •  3 mths ago
      EU should ask US for money. They are partners, right?
    • ken
      ken  •  Tulsa, Oklahoma  •  3 mths ago
      I'm sure China is aware of all this. Are they just wary of disturbing the Americans?
    • Hans J.
      Hans J.  •  3 mths ago
      Apart from a dozen other reasons why China is not obliged to do anything in that direction: Military and Politically the Europeans are the bed-buddies of the USA and usually most unfriendly towards China. No, let their great friend the USA take care for them.
    • 1 tired citizen
      1 tired citizen  •  3 mths ago
      Any country, including China and especially the USA, would be foolish to give money to Greece. There is no way to guarantee that Greece will even honor the contracts, much less pay the money back. This sounds like another Solyndra. Money thrown down a hole.
    • Just Me
      Just Me  •  3 mths ago
      As much as there are three reasons why China would be wise to rescue Europe, there are 3 equally (if not more) reasons why she shouldn't be stupid to rescue them:-

      1) If Europe falters, it might hurt China's economy badly BUT WON'T CRIPPLE HER.
      Though Europe may be her largest trading partner, it's not her only trading partner as she is enjoying brisk trades with almost every Tom, Dick & Harry nations all over the world. As in the law of physic, what goes down the other will goes up. Meaning if the tradings with Europe will to go down, I am sure her tradings with other parts of the world will definitely go up.

      2) Whatever China hopes to gain on the leverage with the West, it won't matter much.
      You see, Europe is consisting of a group of nations loosely banded together. If China will to give massive help to Europe, some of the heavily in debts nations might be grateful but NOT NECESSARY those whose economies are still in good shape such as Germany & France. These latter nations will not feel or wanting to feel indebted to China.

      3) Charity should begins at home.
      Even though China is now the 2nd largest economy in the world & holds the world's largest reserves, there are still so many things that need to be done to rectify the problems at home.... such as housing, health, education, social problems, floodings, droughts..etc. Therefore if her leadership uses too much of the country's reserves to help "the foreign devils" (Europe) & should the loans turned sour, the repercussions from the wrath of the Chinese people will be too much for the leadership regime to bear. So I bet no current or future Chinese leaders in their sane minds will dare to take such risk.
      • Jack
        Jack 3 mths ago
        I think you don't understand that the EU, NAFTA (in particular the USA and Canada) and Japan are the three great feeder economies on the planet...and they are so intertwined that if one of them collapses, China's economic strength will wither and die. Let me explain how.

        First...the EU collapses under this sovereign debt crisis...and China loses it's single biggest market for exports...as well as losing a substantial amount in its investments. The EU collapse also spreads to Russia...because after all, EU markets historically hungry for Russian oil no longer need as much of it. Russia follows the EU into recession...as do many nations that rely on Europeans for tourism...so recession also grips the Caribbean, parts of Africa, South East Asia, etc...

        Second, there is another economy in Asia that is dependant on trade: Japan. And like the EU, Japan is a feeder economy...it's trade balance is largely kept afloat because of exports to the EU and NAFTA nations. Japan is also carrying an enormous public debt that is actually greater (as a % of GDP) than either Italy's or Greece's. Suddenly with the loss of export strength, Japan falls into a deep recession...or possibly even a depression...because with out trade balancing out, Japan's creditors will be downgrading their debt as well. The places that make money off of Japan...the Middle East, South East Asia, Australia...now suddenly find themselves in precarious circumstances...and with the possible exception of South Korea, most of those Asian economies...will also fall into recession- Taiwan, Vietnam, the Philippeans, Malaysia, Singapore, Indonesia, Australia, New Zealand, etc... With that happening, China's economy loses more export opportunities, and more investments.

        This leaves one feeder economy left: NAFTA. Except that the USA is already staggered by the decline in the Japanese and EU collapses...and now, the largest importer of US goods (Canada) is on the brink of collapse because resources which have long kept Canada afloat, are now worth only a fraction of what they used to be worth. So the US economy follows the others into recession...or by this point, perhaps even depression...and of course this touches Mexico deeply because the Mexicans have historically had a healthy trade surplus with both the US and Canada.

        Suddenly, resource driven economies (which China is one, by way of it's agricultural output) are sputtering...which spells disaster for countries like Brazil, Venezuela and Chile. And with less money by way of natural resources, these nations are forced to scale back their consumption of manufactured goods...which once again hammers the Chinese hard.

        Of course Africa has been spared, right? Well, no...not really...because the African beast is also largely resource driven...but suddenly there's no market for North Africa's oil, or West Africa's coffee and cocoa crops or oil. And of course with the collapse of their major aid providers, impoverished African nations are now left to their own devices when it comes to famine. The human toll in Africa will once again be devastating!

        Obviously the free trade agreements were a calamity because manufacturing in the world become so imbalanced. If the EU goes down, the world will go down with it...and that definitely includes China.
      • Just Me
        Just Me 3 mths ago
        What you said makes sense and basically you got all the theories right. But then don't forget every cloud has a silver lining. No doubt many countries will be affected in this domino-like world-wide woe but still I believe NOT ALL will be affected & there will be some who are in better position to ward off these problems. And one of them is China.

        Though she has a massive reserve of over 3 trillion dollar, I doubt that amount is sufficient enough to save & solve all the European's woes alone. So instead of taking the risk of pouring good money into bad money, why not spending it at home where there are still many things that need to be done to further improve the lives of her own people? I don't meant China should be ungrateful but she needs to take care of the half of a billion Chinese people still living in poverty first before taking care of the Europeans whose lives are very much better than them anytime. Afterall isn't it charity should begins at home?
    • ross
      ross  •  3 mths ago
      The Chinese are not as stupid as the Europeans, they won't lend any money to Greece and probably not to Europe either as most of the Countries in the EU will be down the same path in the near future. Stupid article, Europe getting worse won't destroy China.
    • E
      E  •  3 mths ago
      Even if China's economic growth were cut in half, it would still be twice as large as ours. China didn't force Europe or the US to borrow more money than they could ever pay back just to keep government growing at a ridiculous rate and sign ridiculous contracts with government employees that could never be sustained. They didn't force either the US or Europe to be dependent on foreign countries for energy, or use oil instead of gold to back their currency and go to war full time to support that crazy policy.
      I don't like having my money stolen to pay for those failed policies, If I had a choice like China, I wouldn't give them the time of day, let alone bail them out.
    • Saundra
      Saundra  •  Irvine, California  •  3 mths ago
      Greece will be #$%$ up by the end of the year. The Euro will collapse in 18 months, Why would China want to get involved in this Euro Trash festival.
      • david
        david 3 mths ago
        Maybe it's because they don't listen to Rush.
    • brooklyn
      brooklyn  •  Baltimore, Maryland  •  3 mths ago
      these american and european financial so called expert with credentials from Harvard & oxford sent their manufacturing jobs to China in the mid 80's and now most countries in the world owes China big time , still they insist it's the right thing to do i say no brainer. one example: when i came to america in the 80's , LONDON FOG coat are made in Baltimore, Md. one of the best immortalized by H. Bogart in many movies he made, have you seen one lately, won't even touch it. Sending jobs overseas sure is a success to those company CEO , it made them super rich, no more middle class. either ur rich or poor and the country bankrupt. America wake up...though Ron Paul got funny voice and not too friendly with immigrant , he is the best prescription for America today.
    • Dick Hatch
      Dick Hatch  •  3 mths ago
      Europe is China's trading partner?? No wonder they're failing.
    • Jimee63
      Jimee63  •  Delray Beach, Florida  •  3 mths ago
      I disagree with all the premises stated in the article. Bailing out any countries in the EU would be throwing money away. To protect their future economy, China should consider helping in the re-building of the EU after Greece and two or three other weak countries are allowed to default.
    • E
      E  •  3 mths ago
      do you know why China has money to purchase countries debt. they have a flat 30% tax, no deductions allowed. If the US had that it would solve a lot of problems, and make a lot of money.
    • david
      david  •  Harlingen, Texas  •  3 mths ago
      Thanks to Bush, they own us, so they may as well. Wouldn't it be great to see Cheney trying to speak chinese?
    • oilfieldworker
      oilfieldworker  •  3 mths ago
      China is part of the whole economic problem facing the world. In their greed to make all the money they could by flooding the world markets with cheap junk. Hard times for them is soon at hand. Of course you won't see or hear about it because all media is controlled and only news with a "good" china twist is reported.
    • Patrick
      Patrick  •  3 mths ago
      BEWARE THE NEXT "YELLOW PERIL" WHEN EUROPE TURNS TOTALLY CHINESE
      • Adam
        Adam 3 mths ago
        All this "yellow peril", "perpetual foreigner" crap and so forth tells me one thing. You sir, have failed at the internet, and more importantly, failed at life. Thank you for playing.
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