China needs caution in expanding economic presence in Europe 

By Zhao Kejin (Global Times)

15:43, September 28, 2011

Edited and Translated by People's Daily Online

Avoid political considerations when buying European government bonds 

There has been much discussion recently about whether China should continue to buy European government debt. Many people believe that since Europe is experiencing sluggish economic growth, China should shoulder its global responsibility and take advantage of financial support to expand its economic presence in Europe, thereby paving the way for its rise. One question that immediately arises is whether the time has come for China to greatly increase investments in Europe. 

The real question is not whether China should buy more Italian government bonds or expand its economic presence in Europe, but how it can grasp the actual situation in Europe. The European debt crisis is in essence a continuation of the 2008 global financial crisis, which was in fact a credit crisis. History has proven that it is simply impossible to rebuild a sound credit system in two to three years. 

Europe will overcome debt crisis, but will still face many challenges 

Given past experience, Europe will manage to survive and recover from the debt crisis because of the capability of the European civilization and the core competitiveness of the European people. Two key questions are: What price Europe will pay for the crisis? When it will overcome the crisis? China should adjust its Europe strategy based on the analysis of the two questions. 

From the current situation, it could be seen that Europe possibly will not be able to pull itself out of the crisis in a short period. By analyzing various indexes of Europe's economic operation, it could be predicted that the European debt crisis may last for a very long period. and the debt crisis may turn into severe financial crises in some countries. 

First of all, the alleviation of the debt crisis fundamentally depends on the tax revenue growth and economic growth. However, affected by the debt crisis and turbulence in the financial market, Europe's economic growth has shown signs of slowing down. Europe's domestic demand is weak, the external environment is difficult, and signs indicating a worse prospect of Europe's economy have also appeared. 

Second, even if the economy of Europe shows signs of recovery, it will not be a short-term job for Europe to recover its financial credit system, known as the economic engine. The current financial crisis originated from the United States, and the skills needed to repair the financial system have not been mastered by Europeans. Even if Europe and the Untied States could join forces to start up the financial repair project, their efforts will be limited, and they will not be able to solve the issue thoroughly. 

In addition, from a viewpoint of geopolitics, it could be seen that the persistent turbulence in the Middle East and North Africa probably will block the "window of opportunity," preventing Europeans from reaching the Asia-Pacific Region, which has the most dynamic economic vigor. 

China has to be cautious while expanding in Europe

Emotionally, China is willing to give a hand to the European countries in difficulties. However, practically, China has to comprehensively consider many factors including the investment return, security, risk and national interests and therefore has be cautious while expanding in Europe. 

China certainly can buy some European government bonds, but needs to follow the principle of equality and mutual benefit while investing in government bonds. China will be more willing to buy European government bonds if they offer a higher yield than other investment products of the same kind. 

At present, investment opportunities and the room for development are more important to China than the returns on inflation-proof government bonds. If European countries can reduce trade barriers, improve their investment environment, relax economic controls and adopt other measures to attract Chinese private and governmental investments, China will certainly buy more European government bonds and consider expanding and deepening strategic cooperation with European economies. 

In a word, as long as China and Europe are working together based on the principle of mutual benefit, they can negotiate and cooperate with each other on anything because that not only accords with the common interests of China and Europe but also is an objective requirement of globalization.

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