Why China won't save the world

A Chinese paramilitary policeman stands guard outside the European Union Delegation in Beijing on 1 November 2011 Commentators outside China suggest that Beijing holds the key to Europe's recovery

Is China's President Hu Jintao about to fish out his chequebook at the G20 summit in Cannes and, with a flourish, wipe away Europe's woes?

From all the breathless speculation you'd think that was on the cards. The talk is all about how "China can save the world", or ride in and "rescue the Eurozone".

Of all the G20 leaders President Hu may seem to be in an enviable position, with China's economy growing at about 9% a year and holding a war-chest of $3.2 trillion (£2tn, 2.3tn Euros) in foreign exchange reserves.

But it's worth considering that President Hu is not in such a powerful position. He's not about to "save" Europe - in fact he's probably as concerned as anyone else about the way Greece seems to be sinking deeper into the economic and political mire and the Eurozone may be heading for even more trouble.

Most of the hype about China's ability to influence the situation is coming from people commentating from outside China. What is being said here is very different.

"China can neither take up the role as saviour to the Europeans, nor provide a 'cure' for the European malaise," said the state-run Xinhua news agency at the weekend.

Drag on Europe?

To put things in perspective, for all China's rise, its economy accounts for less than 10% of global GDP at present, while the developed nations of Europe and America make up well over 50%.

It is Europe - even in a time of crisis - that does much to power China's rise, rather than the other way round. Europe, we all know, is China's biggest export market. Last year it bought 280bn euros of Chinese goods.

An employee operates a camera to zoom in on the image of a Chinese 100 yuan banknote at a production exhibition in Wuhan, Hubei province, on 13 October 2011 Chinese exporters have been hit by the downturn

A new downturn in Europe would hit China hard. At the giant China import-export fair in Guangzhou this week almost everyone I spoke to said orders from Europe are falling and that's hurting China's exporters.

By contrast, some say, China is a drag on Europe. It sells far more to Europe than it imports from it, and that is not going to change overnight. Only Germany has serious trade with China, as it makes the machinery and motor vehicles Beijing is buying in large quantities.

China isn't investing much in Europe either - less than 1bn euros last year. That was little more than 1% of foreign investment in Europe, which pumped five times as much into China.

While many outside China view its leaders as strong, masters of a rising power, many in China see them as cautious, consensual, hemmed in by problems at home. President Hu has just a year left before he's due to step down, so he's unlikely to take radical decisions right now.

China is trying to slow its own economy, to control inflation, to unwind the massive investment and credit boom it used to get through the last global crisis, to keep a lid on rising protests. What would help Europe is if Chinese consumers bought much more, but that will take time to happen.

In the meantime Beijing has talked at various points in the past year or so about stepping in to help Greece, Portugal and Italy. But it has not done much, understandably wary about losing if it invests rashly now in the middle of a crisis.

China has huge holdings of euros and Europe is important to China, so it will invest, but on a clear-headed, commercial basis. Just don't expect China to save the world.

Damian Grammaticas Article written by Damian Grammaticas Damian Grammaticas China correspondent

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  • rate this

    Comment number 182.

    I agree that China has its own problems to resolve which is more urgent than helping other countries out. Inflation in China is terribly high. People are angry because the high price of the houses, incomplete social insurance, unsafety of the public constructions etc. However because of the big population, it is a large amount of money the government need to input into the society to figure out one by one. That is why sounds to other countries China is rich but it is still developing but not developed. So don't put all the hope on China for it has its own 1.3 bn people to survive.

  • rate this

    Comment number 181.

    I'm with many others here... why would they?? No doubt they are savvy enough to snap up assets and do it that way, but just bailing us out because they have the money... come on!!

    Wasn't that long ago Iceland was on the precipice... didn't see the UK opening its chequebook to help out of pure alturism - more concerned with getting its own money back regardless of the pain in Iceland. Same game, different scale.

  • rate this

    Comment number 180.

    Our politicians have had too much faith in 'the market' to regulate itself. China is an example where political regulation and 'the market' can work together. I don't think the Chinese government would allow any of its companies to manufacture products that would then be imported back to China. Capital deregulation has allowed western countries to move private capital to the eastern countries resulting in huge financial and social problems in the west. Time for some serious thinking by all involved.

  • rate this

    Comment number 179.

    174.McWulf , I agree with you 100%. Europe should just do what they preach. Stop any dealings with non-democratic, human rights abusing countries like China. THAT's the moral high ground. Unfortunatey you (Europeans), for a lack of a better term, are mostly hypocrites. And you are all become too precious to do all the dirty, low class works like maufacturing cheap products. That's why you (Europeans) will say nothing because bottom line is you just want to enjoy life and leave all the dirty works for overseas "third world" people do for you.

  • rate this

    Comment number 178.

    re: #176. poodlefaker
    >>>For years China has sold us cheap gadgets and goodies that we wanted but don't really need. ...Now, because even the banks are running out of cash, we are asking China to lend us some money to buy even more of the stuff

    Not really. The idea is they inject liquidity into the banking system, so that speculators don't totally disinvest in the Euro nations and bring it crashing down. It's NOT so that we can buy more stuff, it's asking them for an expression of confidence in the Euro. Academic really, cos they're incredibly unlikely to do it. Trade wars, here we come.....


Comments 5 of 182



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