The summer edition of Davos concluded last week in Dalian China. Because of Europe’s debt crisis, the attitude of China — which holds 3.19 trillion U.S. dollars in foreign exchange reserves — became the focus of attention.
Prime Minister Wen Jiabao made it clear that China is willing to help the debt-ridden European countries, just as Italy was reported to be negotiating for Chinese purchases of its bonds and investment.
There were also reports that the BRICS countries (Brazil, Russia, India, China, South Africa) are about to discuss a coordinated response to help with the debts in the Euro zone.
There is no denying that China has become an integral part of the global economy. It is impossible for China to close the door and ignore what is happening elsewhere, in the face of a series of European and American debt crises.
The debt crisis could spread at any time — so no country is immune. How to avoid risks and maintain the stability of the financial market involves the vital interests of all economies. This is the very reason why the BRICS countries are looking to respond quickly.
So what is the role for China to play internationally?
In fact when the global financial crisis began in 2008, people already talked about China saving the world. At that time, Europe and the other Western countries all lobbied China to participate in the bailout plan. Whether or not China should help aroused a lot of controversy domestically. Many argued that it’s an opportunity for China to rise, a chance to highlight its image as a responsible power. Responding to the global financial crisis would give China a greater voice in the structure of global financial governance.
Yet three years have passed, and what we see today is that China is deeply mired in US debt, and faces a huge risk of loss.
The world economic recovery is slow, while the nature of the economic structure hasn’t changed. Meanwhile China still lacks a voice in global economic governance. The trade frictions between China and the West haven’t stopped. The tension around China’s border continues one after another. The diplomatic strategy that China plays of trading economic interests with political conditions has not been effective.
If responding to the crisis does not lead to the lifting of its export restrictions, or having its market economy status recognized by the US and by the European Union, then what’s the interest in it for China?
Past experience tells us that whether it’s the purchase of sovereign bonds or direct investment, it is always a short-term investment — and that there is no possibility of cashing out a large sum in the long term.
In other words, it’s easy to board but difficult to disembark. Once China is kidnapped by its reserves, it will lose its initiative completely.
Economic stability at home counts more
In contrast, the commitments these countries made to China will not necessarily be fulfilled in time or to be effective in the long term. In addition, when it involves political issues, they can be used over and over again as bargaining chips.
In fact, the most important contribution of China to the world economy is not external aid but rather its domestic economic stability.
China is already regarded as the locomotive of the world’s economic growth. It is only if its machine keeps running that it can help others.
Under the current harsh economic conditions, both domestically and abroad, risks abound everywhere. The crisis can spread anytime. China needs to face its own problems first.
Continuing high inflation, worsening economic structures, the monopoly of state-owned enterprises, the small profits of small businesses, loan difficulties, local governments’ debt risks…. The Chinese authority’s deep-seated reforms are yet to be achieved. Instead it is just relying on short-term policy measures to boost the economy.
More and more private capital is not invested in industries, but in usury, speculation on real estate, gold or artifacts. The financial market has difficulty in finding a way of absorbing the liquidity effectively.
The uneven development of China’s economic and social structures can in itself cause a potential financial crisis. If the market bubbles burst, the blow could be fatal to China’s economy.
If there’s ever a crisis in China, our resistance capability is not at all comparable with that of the West. The crisis in Europe affects only the quality of life; but if it happens in China, it will be a question of people’s survival.
The main difference is that we do not have the solid backing of a social security system. China’s wealth does not lie in the hands of its people. Most of the people at the bottom of the society have little ability to withstand substantial economic turmoil.
At the moment, China still must put itself first and show its confidence in the ability of EU countries to overcome the debt crisis and boost their economies. Still, China has to keep a clear head, act within its competence for specific operations, and stay cautious towards the demands of any external market rescue.
What is imperative for China is to solve its internal economic problems and improve its ability to withstand risk. In addition to humanitarianism, what we of course need to do is protect our own interests.
Read the original article in Chinese
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