For Beijing, euro debt crisis like ‘black death’
An article in the People’s Daily criticises the economic policies of European nations. It praises China’s own political and economic model. However, cracks appear within China over how to manage the crisis. The China Construction Bank boasts of its success, achieved by not respecting Beijing’s directives.
Beijing (AsiaNews/Agencies) – Europe’s “deadly” debt crisis will harm China’s economy, the People's Daily said today in a rare critical article. For the top newspaper of China's ruling Communist Party, Western democracy is to blame, whereas China’s success is due to its own political and economic model.
Europe’s “sovereign debt crisis has spread like the Black Death of the fourteenth century across the euro zone countries,” said the article signed by Zhang Zhixiang, a former head of the People's Bank of China international department, and Zhang Chao, an economist for the China Development Bank, i.e. high-ranking non-political officials.
Fortunately, this will “not have as large an impact on our country's foreign exchange reserves as the US sovereign debt downgrade, because euro assets make up far less of our country's foreign exchange reserves than the dollar”. It “will [however] lead to a decline in real demand” with “a far-reaching impact on our country's real economy” because China’s exports will inevitably drop.
About a quarter of China's record foreign currency reserves of more than US$ 3 trillion are held in euro assets; another third is in US dollars.
The 27-member EU bloc is China's biggest trade partner, with bilateral trade in goods last year reaching 395 billion Euros (US$ 570 billion), a rise of 13.9 per cent. Chinese exports to the EU reached 281.9 billion Euros last year.
Chinese leaders, including Prime Minister Wen Jiabao, have repeatedly expressed confidence that debt-laden European countries can overcome their problems and return to healthy growth.
In addition, during a visit to Germany in June, Wen said his country could buy the sovereign debt of some troubled euro zone nations if needed.
Yet, “The euro zone should reform the institutional constraints to economic development, and show a responsible attitude regarding the links between their countries' and their region's economic development and global economic and financial stability,” the article’s authors said.
The piece was published only days before French President Nicolas Sarkozy is due to meet his Chinese counterpart, Hu Jintao, in Beijing for impromptu talks that will probably focus on the recent turbulence in global financial markets.
For his part, US Vice President Joe Biden, on his last day in China, yesterday told students Chengdu University that the United States would meet its obligations, despite bad reviews by international rating agencies. He also said that China’s rise to world power status is a “positive development” for the United States and the world. He refrained however from talking about human rights and democracy.
For analysts, Beijing is trying to use its huge financial reserves to carve a greater role in world governance and set itself up as model for economic development (based on a one party state) by claiming that it is more efficient and reliable than Western and democratic systems.
And yet, despite its tight censorship, cracks in China’s shiny armour are appearing. For instance, last night, the China Construction Bank, the country’s second-biggest bank by market value, reported record profits for the first half of the year on higher demand for loans.
This is a sign that banking authorities’ instructions to cool the credit boom were not heeded. For months now, they have tried to rein in inflation and reduce the risk of loans turning bad, against a backdrop of local authorities’ profligacy (expensive buildings and cars).
"The focus going forward is credit quality instead of credit growth," said Wilson Li, a Shenzhen-based economist, because an economic downturn will inevitably increase the number of bad loans.
Europe’s “sovereign debt crisis has spread like the Black Death of the fourteenth century across the euro zone countries,” said the article signed by Zhang Zhixiang, a former head of the People's Bank of China international department, and Zhang Chao, an economist for the China Development Bank, i.e. high-ranking non-political officials.
Fortunately, this will “not have as large an impact on our country's foreign exchange reserves as the US sovereign debt downgrade, because euro assets make up far less of our country's foreign exchange reserves than the dollar”. It “will [however] lead to a decline in real demand” with “a far-reaching impact on our country's real economy” because China’s exports will inevitably drop.
About a quarter of China's record foreign currency reserves of more than US$ 3 trillion are held in euro assets; another third is in US dollars.
The 27-member EU bloc is China's biggest trade partner, with bilateral trade in goods last year reaching 395 billion Euros (US$ 570 billion), a rise of 13.9 per cent. Chinese exports to the EU reached 281.9 billion Euros last year.
Chinese leaders, including Prime Minister Wen Jiabao, have repeatedly expressed confidence that debt-laden European countries can overcome their problems and return to healthy growth.
In addition, during a visit to Germany in June, Wen said his country could buy the sovereign debt of some troubled euro zone nations if needed.
Yet, “The euro zone should reform the institutional constraints to economic development, and show a responsible attitude regarding the links between their countries' and their region's economic development and global economic and financial stability,” the article’s authors said.
The piece was published only days before French President Nicolas Sarkozy is due to meet his Chinese counterpart, Hu Jintao, in Beijing for impromptu talks that will probably focus on the recent turbulence in global financial markets.
For his part, US Vice President Joe Biden, on his last day in China, yesterday told students Chengdu University that the United States would meet its obligations, despite bad reviews by international rating agencies. He also said that China’s rise to world power status is a “positive development” for the United States and the world. He refrained however from talking about human rights and democracy.
For analysts, Beijing is trying to use its huge financial reserves to carve a greater role in world governance and set itself up as model for economic development (based on a one party state) by claiming that it is more efficient and reliable than Western and democratic systems.
And yet, despite its tight censorship, cracks in China’s shiny armour are appearing. For instance, last night, the China Construction Bank, the country’s second-biggest bank by market value, reported record profits for the first half of the year on higher demand for loans.
This is a sign that banking authorities’ instructions to cool the credit boom were not heeded. For months now, they have tried to rein in inflation and reduce the risk of loans turning bad, against a backdrop of local authorities’ profligacy (expensive buildings and cars).
"The focus going forward is credit quality instead of credit growth," said Wilson Li, a Shenzhen-based economist, because an economic downturn will inevitably increase the number of bad loans.
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See also
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China buying Euro debt
21/06/2011
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