Tuesday, November 01, 2011

If China helps Europe, only behind the scenes - Victor Shih

Victor Shih
Is China able and willing to bail out Europe? Political and financial analyst Victor Shih does not exclude the possibility, but he tells in Global Post, if China does so, it is not going to boast about it in public. What are the effects of China's own debt problems on the world?

Victor Shih in The Global Post:
The slow down in local government borrowing has led to a slow down in Chinese imports of construction materials. That mainly effects Australia, Brazil and other countries that export raw materials to China.  
On the contrary, the U.S. has really benefited from food inflation in China. Farmers have been driven off their land, when it is converted into real estate. Chinese dependence on imported food, especially from North and South America, has increased quite substantially in recent years. I don't see that trend reversing any time soon. So farmers in the U.S. have really benefited from Chinese growth and from rapid and artificially-driven pace of urbanization. 
This week, French President Nicolas Sarkozy appealed to his Chinese counterpart, Hu Jintao, for financing to support the euro zone's bailout. Does China have the money to do this? There are, after all, a lot of poor people in China, and development has a long way to go. And what are the risks of such financing for Europe and China? 
China has the world's largest foreign exchange reserves, and so strictly speaking they have the money to invest in whatever sort of bailout scheme Europe comes up with. At the same time, I think Chinese leaders are very careful not to publicly claim credit for saving Europe. That's because, although in the short-term there could be some pay-off, there are still risks and we don't know what really is going to happen to Europe down the road. If this bailout has to be followed by subsequent bailouts, then it's not going to look very good for the Chinese decision makers. So I think they'll go about it in a careful way, and it will largely go unseen by the public.
More in The Global Post, also about the Wenzhou private lending bubble and China's other debts.

 Victor Shih 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.
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