Realizing the benefits of China-EU strategic cooperation
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However the EU is asking China to engage in activity which does carry definite financial risk. It is this the Chinese authorities have to assess realistically. With EU encouragement, China has been buying bonds in Spain, Greece, Portugal and some of the other European countries which face risk on their sovereign debt.
At least some "restructuring" of this European country debt is realistically inevitable – "restructuring" being a polite term for the harsh financial reality that the borrowers will not meet the terms which they originally agreed with lenders.
Take Greece. Its debt is rising towards 160 percent of GDP. Its interest rate to borrow money on private markets is 16 percent – meaning in practice Greece is excluded from private finance. The EU already agreed a $156 billion bailout for Greece and this has been insufficient to stabilize the situation. Greece is most unlikely to be able to repay its debts on the originally agreed terms. Astronomical interest rates are the markets estimate of how much the value of Greek debt will be marked down by – in reality an interest rate plus a calculation of by how much the debt will be devalued.
Whether China wishes to participate in debt auctions which carry risk is an important decision. As part of an overall agreement China could decide to take the risk on some parts of European debt – because it might judge that the overall benefits of an agreement would be greater than individual losses on debt. In judging whether an agreement is "win-win" what has to be considered is its overall framework – it is unrealistic to insist there has to be a "win" on every single part of the agreement. But what is completely unreasonable is for China to be asked to enter into a "win-lose" agreement – that is where the EU wins and China loses.
The EU maintains a series of policies which are unreasonable. An example is not accepting China's economy having market status – something even the US is reconsidering. At the China-EU strategic dialogue there were nice words from the EU side – Catherine Ashton, EU foreign policy chief, declared that "the EU-China relationship should be an example of international cooperation". But there was no movement on the key issues for China.
In short, for some in the EU, China is to be asked to put its money into risky European financial instruments without any serious agreement that will bring benefits to China. That is not an approach any country would accept.
There are big potential mutual benefits for both the EU and China in their relations. But to realize them the EU needs a realistic position.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/node_7080931.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn
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