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China charms Europe, but Beijing has own agenda
LISBON—When a nervous horse unseated its cavalry officer at a red-carpet event during Chinese President Hu Jintao’s state visit to Portugal last year, the leader of the world's second-largest economy broke with protocol and walked over to the bruised guardsman. “I hope you get well soon,” Hu told him through an interpreter. The public display of compassion was in keeping with China’s European charm offensive in recent years. It has waved its checkbook at a growing number of financially ailing European countries — although the actual impact on Europe’s debt-stricken countries has been limited so far, and aimed mainly at winning friends and business contracts.
Europe’s frail economies are wobbling under the weight of their debts. Their urgent austerity measures are stunting growth and driving unemployment higher, and their citizens are clamoring for improvements. That has changed the complexion of European dealings with booming China. Crisis-hit European countries are swooning over China’s US$3.2 trillion cash pile—the world’s biggest foreign exchange reserves — even though many are angry about what they view as unfair Chinese practices. “China is increasingly trying to diversify its foreign policy relationships ... trying to find the right ways to use its new-found influence, to gain from it,” says Nicholas Consonery, an Asia analyst at Eurasia Group in Washington DC.
Join the dots, Beijing-watchers say, and China’s strategy becomes clear: It wants to use its economic leverage to make friends who may be more forgiving in disputes over trade and human rights, and ensure doors are open for its goods and corporate investments in the European Union, its main export market. Most immediately, many European countries are looking for a lifeline to extricate themselves from the continent’s severe sovereign debt crisis, which threatens to collapse the continent’s financial system. In the latest example, Rome officials disclosed this week they held talks with China’s sovereign wealth fund about buying debt-stressed Italy's bonds. Before those talks, Beijing had vowed to buy the bonds of Greece and Portugal, which ended up needing international bailouts, and Spain and Hungary.
Though neither China nor EU countries disclose figures on Chinese bond purchases, analysts believe Beijing’s repeated expressions of faith in the EU’s finances are aimed principally at building goodwill and have not translated into large disbursements. “Europeans have a tendency to pray for rain from China, but the rain is not necessarily coming,” says Francois Godement, a Paris-based senior policy fellow at the European Council on Foreign Relations. Experts reckon cautious Chinese leaders are hesitant about putting big money into jittery debt markets. Some leading Chinese economists have discouraged the investment as too risky, and analysts note Beijing has to pay attention to the needs of its own poor.
According to EU officials, China has invested in Europe's €440 billion (US$605 billion) bailout fund. But that fund carries a top AAA rating, meaning it is an extremely safe way for Beijing to help Europe without exposing itself much to the dangers of a default. The sums were never disclosed. Rachel Shoemaker, an Asia expert at Executive Analysis in London, says the bond purchases—however modest—can help win approval for broader Chinese investments down the line, such as in trade and corporate and infrastructure investments.
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