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2012/06/12 / Horace

China, G20 Summit and Eurozone Crisis

I did some research for the impact of the Eurozone crisis on China. And I summed it up in a brief report. I didn’t polish it so I apologize beforehand for the grammatical mistakes here.

Before the upcoming G20 Summit, despite its reluctance on talking about Syria, China has shown great interest in discussing Eurozone crisis.

China’s Vice Finance Minister Zhu Guangyao endorsed the recent 100bln Euro bailout to rescue Spain’s faltering banking sector as a beneficial effort “on short term risk controls” but calls for a more “decisive consensus and take more decisive actions to safeguard long-term stability in the region.”

Hardly Hit

China and the Eurozone economy are closely inter-connected. Europe has become China’s largest export market, accounting for 22% of China’s total export volume, and Euro accounts for 27% of China’s total foreign exchange reserve. The current Eurozone crisis has not only made China’s 10% goal in export increase this year difficult with export to Europe sliding for consecutive 4 months until May, but also made it difficult for China’s foreign exchange reserve to hold its value.

Both Zhou Xiaochuan, head of China’s central bank and Premiere Wen Jiabao has vowed to keep on buying in Euro assets, but meanwhile, China is busy planning its Plan B for the potential deterioration.  Sources have pointed out that Chinese government has ordered ministries of finance and commerce to examine the potential impact of Grexit and possible strategies to encounter it.

Yu Yongding, president of the China Society of World Economics and Director of the Chinese Academy of Sciences Institute of World Economics and Politics, has called for a “Greece-proofing China.”

Won’t be active

China has said it “would not be absent” from the plans to enhance the IMF’s funds, however, China does not seem to be too active for fear of over-stretching itself.

“The question is can the G20 do anything to accelerate and bring forward the date at which China feels it should do something? I’m skeptical,” Tim Condon, chief economist and head of Asian economic research at ING in Singapore, told Reuters.

China is not likely to throw another huge stimulus package like the 4 trillion yuan stimulus plan carried out in 2008, despite its export and total economic growth slow-down.

Chance?

Despite all that has been said, the Eurozone crisis may not be all that bad. It offers China, which has accumulated huge capitals after 30 years of development, a good chance to invest in Europe.

China’s investment in Europe has more than doubled in the past year and is estimated to reach 2 trillion USD by the year 2020.

A Capital says in a report that investment in Europe could help Chinese enterprises improve its profitability and enter the upper sector of the value chain.

Long Guoqiang of the Development Research Centre of the State Council, says the Eurozone crisis could be a very good chance for China to acquire international-acknowledged brands and good sales distribution channels. “We have two measures in brand building. One is to cultivate your own brand with efforts, but it consumes a lot of money, time and efforts. It is not easy. The other important method is to acquire existing international brands through mergers.”


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