China can be the solution for the EU crisis?

The political relationship between Europe and China is in no way trouble free. However, in these particularly hard times, Europe needs capital more than ever. China has this money to invest in European developed countries and finance their huge amount of national sovereign debt. The Old Continent welcomes financial aid, which is understandable, but why is it so important for China to save Europe? And how can this Asian country do so, with a per capita GDP of $4,000, loan money to Europe, whose per capita is higher than $30,000?

China’s “Go Out” policy is not new, it has started in 1990s. This evolving strategy’s aim is to target advanced market, where the Chinese capital can profit remarkably and in a more sophisticated way. In the 1970s China’s trade with the European Economic Community was a mere $2.5 billion a year. Now with the 27-member EU it reaches totals $480 billion a year. After China joined to the World Trade Organization (WTO) ten years ago, the country has increased its imports dramatically. The European Union has become China’s top trading partner and what is more important, that EU is its primary source of technology and investment.

Europe is in crises but at the same time it is still dominant in the world’s economy. It has only seven percent of the world’s population but in spite of this, it produces the twenty percent of the world’s gross domestic product.  In China’s eyes Europe is not only its top exporter, but it remains one of the strongest, most wealthy and best integrated region in the world. The high-quality human resources, the advanced science and technology, and the capacity to reform and innovate are all attractive attributes for the Chinese government. That’s why purchasing European bonds, contributing resources to the IMF, and increasing imports and expanding investment in Europe to support job creation and growth are in China’s interest as well.

China has paid attention to the European Union issues and had several important negotiations with the European counter partners in the past months. In April the Chinese Premier Minister Wen Jiabao announced that his country intendeds to increase bilateral trade with Germany, the strongest European economy and its biggest business partner in the region, to 213 billion euros by 2015. This economic step can be a confirmation of the Chinese government announcement regarding to the European crisis, which was revealed last year:

“An economically stable and prosperous Europe is in the interest of China and the world.”

At the same time many European politicians do not want to make a closer co-operation with China. There is the threat that if China plays a stronger role in the European economy and policy, it can lead to other financial problems. Due to the increasing amount of the foreign direct investments the national independence and security can decrease as well.

Not only the EU, but the United Stated has trade agreements and a dependent relationship with China. The U.S. trade deficit with China has been increased significantly over the years. This March, the U.S. trade deficit reached to the widest imbalance in more than three years after imports grew faster than exports. It was caused by the rising oil prices, the stronger demand for foreign-made cars, computers and food products. Exports to Europe have fallen as well because of the debt crises. China gave about a trillion dollar loan to the United States by exporting goods to the country.

By: Crystal Blankenbaker, Irina Czakó and  Ksenia Solovyova


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