With news of Japan’s recently purchased EFSF bonds and further discussion regarding Beijing’s involvement in such affairs, will Europe now see a unified Asian effort to help restore economic stability? The answer is shrouded in doubt and uncertainty.
Even with roughly 8bn€ in their foreign exchange reserves collectively, both nations will be reluctant to submerge themselves in the Eurozone’s mire of economic woes. Nevertheless, as major trade partners of the EU-27, both China and Japan depend heavily upon the fiscal stability of Eurozone member states. With reference to China, European markets account for €280bn, or 25%, of the PRC’s €1.1tn in export revenues, thereby playing an integral role in the development of the country’s rapidly growing economy.
…the onus is on the PRC to safeguard the country’s business interests abroad.
Japanese currency policy, in particular, is built around the EU being as non-volatile as possible. Recent uncertainty in EU policy has caused a swift change to the Yen, thereby strengthening the nation’s currency and weakening its export dominant economy. With an estimated £1.9tn in foreign exchange reserves, 25% of which are Euros, there is also an incentive for Beijing to take greater interest in European affairs. The PRC certainly cannot convert their accumulation of foreign currency into Renminbi, lest they wish to provoke inflation and appreciation.
The growing influence of Chinese corporations on European soil is quickly increasing. With a large stake in Volvo and CIC’s vicegrip over Canary Wharf, the onus is on the PRC to safeguard the country’s business interests abroad. Yet having already purchased now redundant Spanish and Greek bonds, there will be a great deal of pessimism when approaching the prospect of further investment in today’s uncertain market environment.
…it is also a competitor and the PRC would be wise to keep its distance…
Such a bleak outlook on Europe’s future was further reinforced by the head of the PRC’s sovereign wealth fund, Jin Liqun, who succinctly stated that, “If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of their worn out welfare societies. I think the labour laws are outdated – the labour laws induce sloth, indolence rather than hard working”.
The prevalence of such disdain for European economic problems is most definitely a worrying indicator that there will be no miraculous Asian rescue, but rather a calculated observation of events that are to pan out in coming months. While it is true that the EU is one of China’s most profitable markets, it is also a competitor and the PRC would be wise to keep its distance, rejecting any notion that it is some sort of cash cow for ailing European economies.