Tuesday, November 01, 2011

China should not become Europe's white knight - Shaun Rein

No, says business analyst Shaun Rein, when he has to answer the questions whether China should use its foreign currency reserves to support the European Financial Stability Facility (EFSF). In CNBC he argues that Europe should hold up its own financial pants.

Shaun Rein:
The Chinese government is also limited in how much firepower it really has to help even if it wanted to despite its cash horde. Inflation there topped 6.1 percent last month. Real estate prices are softening and fears of non-performing loans and slowing exports are rising. China is poised for a soft landing but the government needs its reserves for what could be a fast approaching rainy day. 
Many in China argue the country should spend more on China’s poor and be more cautious on outbound investments. After all the purchasing power of the Greeks according to the International Monetary Fund was four times that of the Chinese in 2010. Why should China, a relatively poor country, bail out wealthier nations? 
However, as the world’s healthiest superpower China needs to play a responsible role. A far more likely scenario than buying lots of bonds or injecting money into a fund over which it has little control is the government and state-owned enterprises buying up assets like machinery and ports that will help China. 
China is already stepping up its purchases in Europe, such as the state-owned China Eastern Airlines buying Airbus planes last month. China  also imports more, mainly machinery, from Germany than it exports to that country. Expect more purchases of European products and assets which will provide an immediate benefit to China’s economy and actually help Europe more than buying bonds. 
The best thing China can do for the world’s economy is to continue to buy actual products from Europe and be cautious in doling out money too ill conceived plans. Buying products will help the region restructure economies and provide employment which is the key to any recovery. Until Europe’s politicians can prove to China that they have got their act together with detailed plans, China should not add much money into the fund.
More arguments in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.


More stories on Shaun Rein in Storify
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