Another time… a very different world.
A century ago, China was broke and it was European banks helping to fund the new republic.
Fast-forward to the present and how things have changed…
China is the world banker and now Europe needs a cut. European leaders Nicolas Sarkozy, Klaus Regling and Christine Lagarde have brought their begging bowls to China. But they’ve all come back empty-handed.
Now, Europe’s most prominent leader, German Chancellor, Angela Merkel, is in Beijing. And she means business.
She’ll be doing her best to connect personally with China’s leaders and get the support she needs to save Europe from its debt disaster.
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What Europe really wants is for China to buy more euro bonds in order to boost its bailout fund. But China has been reluctant to increase its stake in Europe.
However, things might be about to change. China’s growth is lagging, as European exports dither. And the continent is China’s biggest trading partner.
For this reason, China is likely to buy more bonds, especially if Merkel can guarantee China a good return, says JPMorgan Asset Management’s Head of Sovereign and Institutional Strategy, Andrew Economos:
“If the Chinese get this agreement, I think you’ll see a little bit more activity in terms of the Chinese and the sovereign wealth funds in particular, buying some of the European paper that has been lagging and festering really in the bank vaults of the ECB.”
But while China is likely to lend a helping hand, it shouldn’t be too much, say local Beijingers.
One local, a salesperson, says, “China has no obligation to help.” And another, a financial worker, says, “China cannot afford to spend a lot to help the EU because it has its own domestic problems.”
These views are echoed by the Chinese administration, and probably won’t change, says Enzio von Pfeil, CEO of Commercial Economics Asia:
“I think that China’s view will understandably be that this is Europe’s problem, which Europe has to solve, and not the IMF and not China.”
So despite Merkel’s best appeals for help, China is unlikely to step up this time.