The critique that China is not a responsible player in the international system is not new. China’s human rights records, its goods flooding markets across the world, its ‘dumping’ of goods, its boundary disputes along with its growing military activities, etc are some of the most common parameters for the criticism. However, what is also not new is the fact that China focuses primarily on its domestic growth and its sustainability. The best example of this is China’s focus at the beginning of the global financial crisis of 2008, wherein understanding its own shortcomings, China stated that it could not play the leading role in pulling the world economy out of the recession. Its own economy was also deeply impacted as markets across the U.S. and Europe — the two major export destinations for China — crashed.
A cut to 2011, and the country’s role and position on Europe’s sovereign debt crisis prove the ‘responsibility’ of the country in the international economic order. The Sino-EU bilateral trade in 2010 stands at 130 billion Euros. In terms of Euro dominated assets, China bought more than 40 billion Euro dominated assets in 2010. During a meeting with German Chancellor Angela Merkel in Berlin in June this year, Premier Wen Jiabao said that “China has expressed support for Europe at various times. In other words, when Europe is in difficulty, we will extend a helping hand from afar”1. The economic and trade relations between the EU and China can be traced back to 1975.
China and the EU complement each other economically and their interests are closely inter-woven. As stated by European Council President Heman Van Rompuy, “China has been supportive to Euro Zone countries facing difficulties, just as the EU supports China’s stable development with investment and technology”2. This statement in itself is a crystal clear indication of the mutual benefit the two sides have. In any case, Chinese Foreign Ministry spokesperson Jiang Yu had stated in 2010 that the EU will remain one of the major markets for the country’s foreign exchange investment. Europe is part of the State Administration of Foreign Exchange (SAFE)’s investment portfolio. And it adopts a diversified investment strategy, which ensures stable returns.
Currently, China holds the largest foreign exchange reserves in the world. As stated by the People’s Bank of China, forex reserves rose 30.3 per cent year-on-year to hit US $ 3.1975 trillion by the end of June. However, this has added to inflation and the fears of inflows of ‘hot money’ in the economy. So it is essential that the country diversifies its forex reserves. And investing in Europe’s markets is a logical outcome. This in turn can aid in stabilising the Euro, which is also in its own interests. The capital invested in China by the EU countries is also large in nature. By September 2008, the number of projects invested by European countries in China exceeded 33,000. The average investment amount of the projects invested by European countries is larger than that of the projects invested by other countries and regions. For the EU, China is its second trading partner, and the biggest source of imports. An observation in terms of trade in manufactured goods reveals that while the EU has advantage in technological innovation, quality, safety and energy efficiency, China has comparative advantages in terms of low cost and labour intensive manufacturing3. Complementarities such as these make the EU and China perfect partners for cooperation.
With respect to China’s decisions to aid EU countries in the debt crises, the decisions maybe rational in nature and therefore carry the probability of being labelled as ‘dictated by self interests’ or ‘irresponsible’. Nevertheless, the fact remains that both the sides gain out of such arrangements and further win-win cooperation between the two. This case or the role played by China is extending support to crisis stricken countries in Europe is thus the perfect example of the responsibility the country has in the international economic order.
(The author is a Junior Fellow at Observer Research Foundation, New Delhi)
1 “Wen: China Willing to Help Europe, Could Buy Debt”, Reuters, Berling, June 28, 2011.
2 Zhang Xiaojun “China Extends Helping Hand to Europe Once Again”, Xinhua News Agency,Beijing, June 29, 2011.
3 “Study on the Future Opportunities and Challenges in EU-China Trade and Investment Relations 2006-2010” (2007), URL: http://trade.ec.europa.eu/doclib/docs/2007/february/tradoc_133300.pdf, accessed on August 20, 2011.