Self-interest in China's helping
hand By Jian Junbo
LONDON - Just nine months after visiting
Greece, Italy and Turkey, Chinese Premier Wen
Jiabao set his feet on European soil again. The
just-ended five day tour of Hungary, the United
Kingdom and Germany afforded Wen the same
opportunity as last time to promise that China
will do its best to help the region ride out
financial crisis. Without question, it highlights
the importance China attaches to closer ties with
European countries. Some analysts jump to the
conclusion that China wants to take the advantage
of the financial crisis in Europe to increase its
political influence. However, past experience
shows that it is hardly possible for China to
boost its political influence on Europe. A closer
match to reality would be that by "helping"
Europe, China is helping itself with regard to
strategic considerations to
diversify its foreign reserves
and global interests.
Wen began the first
leg of his tour on June 24 in Budapest, the first
visit to Hungary by a Chinese premier in 24 years.
He signed a number of cooperative deals with
Hungarian Prime Minister Viktor Orban, and
announced that China was ready to purchase
Hungarian government bonds and extend 1 billion
euros (US$1.4 billion) in credit. The purchase of
Hungarian treasury bonds was hailed by Orban as
"historic help" for Hungary.
Three days
later, Wen arrived in London to meet his British
counterpart David Cameron. At a joint press
conference, Cameron cited late Chinese leader Deng
Xiaoping's most famous quote - "It doesn't matter
if the cat is black or white as long as it catches
the mice" - to express his attitude on Britain's
introduction of Chinese-made high-speed trains.
Wen Jiabao had earlier said that China was
interested in tendering to build a high-speed rail
link between London and Birmingham, the so-called
HS2. During Wen's visit, the governments signed
business deals worth about 1.4 billion pounds
(US$2.2 billion). Among them, liquor-maker
Shuijing Fang will sell a stake to British Diageo,
and China will import British poultry and pork to
help strike a balance in bilateral trade.
During Wen's visit to Berlin afterwards,
China and Germany signed trade deals worth $15
billion. Wen and German Chancellor Angela Merkel
also targeted an increase of bilateral trade to
200 billion euros over the next five years.
China and Germany are the two biggest
exporters in the world and Germany is China's
biggest trade partner in the European Union (EU).
Wen said the focus of his meeting with Merkel was
to "boost the growth potential of bilateral trade
... and to once again double our bilateral trade
volume in five years". "The wide range of topics
up for discussion and the substantial achievements
are all pioneering work in the history of
Sino-German relations and Sino-EU relations," Wen
said during a press conference with Merkel.
Wen reiterated that China had full
confidence in European economic stability and
viewed ongoing euro zone difficulties as
"temporary'', adding that China was prepared to
assist Europe by buying a limited volume of
sovereign bonds.
Some sound reasoning lies
behind the decision for Wen to pick these three
countries for his tour.
Hungary held the
presidency of the European Council in the first
half of this year and China has made considerable
investment in the country. More importantly,
Hungary's location in central-eastern Europe
plants it in a region that China wants to
cultivate for trade and investment opportunities,
especially at a time when many old EU members have
become increasingly protectionist toward Chinese
products and investment.
With sound rule
of law, the United Kingdom represents a country
with some of the best conditions for Chinese
investors. It is also a very important trade
partner with China. Germany, as a more important
economic and technological partner for China, is
not only the economic engine of the euro zone, but
also a key EU member in dealing with the Greek
debt crisis.
From what was achieved during
Wen's visit, it is clear he went to Europe again
to seek more economic and technological
cooperation opportunities with these European
partners.
In a sense, Wen's offer to help
ease financial difficulties in some European
countries may be of help to enhance political
trust. But it is too far-fetched to assert, as
some analysts do, that Wen's visit, which followed
Deputy Vice Premier Li Keqiang's visit to Europe
just five months ago, is part of China's efforts
to expand its political influence in Europe by
taking advantage of its ongoing financial crisis.
Such assertion simply sounds like an alarmist
call.
If China were to take advantage, Wen
might have pressed the EU to lift its embargo on
arms sales to China or to grant China market
economy status. But his visit concentrated on
economic cooperation, practically touching no
sensitive political issues.
Given past
experience, China can hardly expand its political
influence in developed countries by improving
economic cooperation with them. In fact, China
faces increasingly severe political criticisms
from the United States, the EU and Japan - its
largest trading partners.
Economic
cooperation is a two-way game. A European country
has the power of will and capability to turn down
any business deal China offers if it considers
that Beijing imposes any political conditions on
it. It is also illogical to say that political
influence would expand with closer economic ties.
The EU has more investment in China than China has
in the EU. Can we say the EU has stronger
political influence on China than the other way
around?
One may better say that China has
some "selfish'' ambitions to expand its economic
interests in Europe and to help ease the financial
crisis there.
China had $3,045 billion in
foreign exchange reserves as of the end of March,
about two-thirds thought to be in
dollar-denominated assets. [1] And the Chinese
currency is still virtually pegged to the
greenback. As such, China is vulnerable to changes
in US monetary and fiscal policies.
In
recent years, there have been growing calls in
China for the government to diversify its disposal
of the country's ever-growing foreign reserves,
not to put "all eggs in a single basket''. Indeed,
the facts, as reported by the Financial Times on
June 21, show "China began diversifying away from
the US dollar in earnest in the first four months
of this year, most likely by buying far more
European government debt than US dollar assets'.'
[2] And there are estimates that about a quarter
of China's foreign exchange reserves are currently
invested in euro-denominated assets.
Wen's
promise to buy more European countries' bonds
helps boost confidence in the euro, which is
clearly to China's benefit as an investor in the
currency. Also, it was evident on the visit that
China wants to diversify its export market to
reduce its reliance on United States markets,
especially at a time when trade protectionism is
growing in the US.
China has little to
gain from attaching political torque to its
investments in Europe, and helping safeguard the
euro from collapse is clearly in its own
interests.
Dr Jian
Junbo, an assistant professor of the Institute
of International Studies at Fudan University,
Shanghai, China, is currently an academic visitor
at London School of Economics and Political
Science, United Kingdom.
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