Asian Perspectives
Global Issues

EU seeks Chinese Eurozone bailout – oh the ironies and anomalies!

Posted by Jean-Pierre Lehmann on Oct 03, 2011

Tags: Europe , China , Financial crisis

Theme(s): Finance

In several decades from now historians will greatly enjoy the amazing anomalies that the early 21^st century is producing. A hundred years ago virtually to the day China’s revolutionary leader Sun Yat-sen described China as a “poly-colony”. Though not in the strict sense of the term colonised by any single Western power, Sun’s contention was that Western trade and finance resulted in the extension of Western imperialism in China. Indeed roughly for 110 years, from the first Opium War to Liberation in 1949, Europe – along with a bit of help from the US! – subjugated China!

History is one of the great ironies in the decision taken by German chancellor Merkel and French President Sarkozy to seek Chinese financial salvation for the Eurozone.

The other of course is economic.

Normally the richer lend to the poorer. This has certainly been the case for the last few centuries of Western dominance. Britain was the great financial power of the 19^th century, the US the great financial power of the 20st century, while both were the richest nations on the planet. Other lenders, such as the Swiss, are also very rich, as indeed, more recently, are the Gulf States.

China may be a great rising economic power in aggregate terms, having surpassed Japan as global number two last year, but in per capita terms at $4382 it ranks (according to the IMF) in 91^st position, just behind the Republic of Macedonia (90^th) and ahead of Algeria (92^nd). Compare with some of the Eurozone countries: Luxembourg, $108,952 (1^st), Netherlands, $46,986 (9^th), Germany, $40,274 (19^th), Italy, $34,059 (23^rd), Spain, $30,639 and the “poor” Greeks, $27,311 (29^th). In fact the poorest Eurozone country in GDP per capita is Slovakia at $16,104 (40^th), thus about 3.5X richer than China. The poorest non-Euro EU country is Bulgaria: $6346 (80^th). The EU average is $32,537.

Of course such comparisons are, as is often the case with comparisons, misleading. China’s contribution to a Eurozone bailout comes from its huge accumulation of foreign exchange reserves. Just as China’s massive purchase of US bonds, a possible rescue operation of the Euro is not motivated by generosity, but by pragmatic economic calculation. China expects to make returns on these financial transactions. Also as the EU is still for the moment China’s biggest trading power, it would be harmful for China’s export industries and the labour they support to see it further decline into a long-term economic slump.

But still, it does raise lots and lots and lots of fascinating questions for us today and for the merriment of future historians.