Jiang Shixue Institute of European Studies Chinese Academy of Social Sciences

Transcription

1 The European Debt Crisis in Chinese Perspectives Jiang Shixue Institute of European Studies Chinese Academy of Social Sciences has maintained increasingly close relationship with Europe in trade, investment and every other field. Therefore, when the European debt crisis took place, it immediately became a hot issue of great interest for Chinese policy-makers, scholars, the media and the public. In this paper, I intend to present what the Chinese scholars say about the causes of the crisis. Then, I shall analyze the impact of the crisis on. Since people around the world have been discussing whether should save Europe or not, I want to summarize the major arguments about this question. I will also attempt to offer a brief introduction about s official position towards the crisis. Finally, I shall try to discuss the possible ways for to help Europe overcome the crisis. I. What Are the Causes of the Crisis? The European debt crisis immediately attracted the attention of the Chinese scholars soon after it broke out in late 009. Many of them have endeavored from different angles to dig out the root causes leading to the crisis. Needless to say, their conclusions are diversified. According to Qiu Yuanlun from the Chinese Academy of Social Sciences, the crisis is the result of both external and internal factors. Externally, Europe failed to adapt itself to the rapidly changing landscape of the world economy by strengthening its competitiveness. Internally, Europe had been suffering from long-term slow economic growth, but still attempted to maintain the functioning of the welfare system, causing an increasingly heavy burden for the public finance. Chen Jiemin and Zhang Yao from the School of Economics at the People s University of believe that the causes of the crisis are closely related to sluggish economic growth of the EU, over indebtedness, trilemma or the impossible trinity of the Euro, and the non-existence of fiscal union within the Eurozone. Jiang Yanxia from the Graduate School of the People s Bank of argues that the European debt crisis was the result of the Eurozone s institutional shortcomings such as ) the disparity between a unified monetary policy and separate fiscal policies; ) inability to cope with asymmetric shocks; and ) inefficient decision-making mechanism. 裘 元 伦 : 欧 洲 债 务 危 机 与 欧 洲 的 未 来 走 向, 中 国 评 论 新 闻 网 (Qiu Yuanlun, The European Debt Crisis and the Future of Europe ) 陈 洁 民 张 尧 : 欧 洲 主 权 债 务 危 机 升 级 原 因 及 对 策 分 析, 理 论 界 0 年 第 期 (Chen Jiemin and Zhang Yao, Why the European Debt Crisis Has Worsened: Causes and Policy Options, Theory Horizon, No., 0.) 姜 艳 霞 : 从 欧 洲 债 务 危 机 看 欧 元 区 的 制 度 困 境, 当 代 经 济 管 理,00 年 月 (Jiang Yanxia, The

2 According to Chen Xin from the Chinese Academy of Social Sciences, the European debt crisis reflects the unsustainability of Eurozone s public finance as well as the shortcomings in its economic governance. Some Chinese scholars have perceived the crisis in a broad aspect. For instance, Zhu Bangning and Yang Juncheng from the Central Party School believed that the Greek debt crisis was caused by ) over-indebtedness which was the result of organizing the Olympic Games in 00 and fiscal stimulus for the purpose of overcoming the repercussions from the 008 international financial crisis; ) cooking the books with the help of Goldman Sachs; ) an economic structure easily under attacks of external shocks; ) a social welfare system incompatible with government revenues; ) inherent shortcomings of the Euro system; and 6) the rating agencies repeated down-grading of its sovereignty. While most of the Chinese scholars look at the crisis in economic dimensions, a few of them try to analyze it in political or ideological perspectives. For instance, Chen Shuoying from the Chinese Academy of Social Sciences believes that the Greek debt crisis is the inevitable result of the inherent contradictions of the capitalist system. It was also caused by the greedy nature of financial capitalism, implying that Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal. According to the author, the Greek debt crisis clearly exhibits the characteristics of pseudo-democracy found in the representative democracy of capitalist system because the decision to join the Eurozone was passed by the parliament, not the result of a referendum. In order to minimize the impact of the European debt crisis on, the author says, it is imperative to stick to socialism with Chinese characteristics, slow down the pace of diminishing public ownership, limit the extent of enlarging private ownership, narrow the income gap, and stimulate domestic demand. II. What Is the Impact of the Crisis on? Theoretically speaking, any economic crisis affects other nations through two channels, i.e., trade and financial flow. Indeed, crisis tends to weaken the nation s demand for and reduce its capacity to invest overseas. Europe is s largest trade partner. Therefore, Europe s economic situation can exert direct and immediate effect on. It is true that trade relations between and Greece, Ireland and Portugal are limited. As Table shows, s to these three problem countries totaled less than US$9 billion in 0, or.% of its total. However, the crisis has greatly damped demand of the whole EU. Moreover, the crisis has also jeopardized world economic growth, creating an unfavorable environment for Chinese. Exchange rate plays an important role in foreign trade. The European debt crisis has depreciated the Euro, and RMB, the Chinese currency, has to be appreciated (see Figure ). On European Debt Crisis and the Institutional Dilemma of the Eurozone, Contemporary Economic Management, November 00.) 陈 新 : 欧 债 危 机 : 治 理 困 境 和 应 对 举 措, 欧 洲 研 究 0 年 第 期 (Chen Xin, The European Debt Crisis: Governance Dilemma and Counter-measures, Chinese Journal of European Studies, No., 0.) 朱 邦 宁 杨 军 成 : 希 腊 主 权 债 务 危 机 评 析, 北 京 行 政 学 院 学 报 00 年 第 6 期 (Zhu Bangning and Yang Juncheng, An Analysis of the Greek Debt Crisis, Journal of Beijing Administrative College, No. 6, 00.) 陈 硕 颖 : 透 视 希 腊 债 务 危 机 背 后 的 资 本 主 义 体 系 危 机, 马 克 思 主 义 研 究 00 年 第 6 期 Chen Shuoying, Perspectives on the Systematic Crisis of Capitalism behind the Greek Debt Crisis, Research on Marxism, No. 6, 00.

3 May, 0, RMB to Euro exchange rate fell below 8.00, reaching a record low level. Table -EU Trade (in billion US$) EU Germany France Italy Spain Greece Portugal Ireland Note: The 0 figures are the first quarter of the year. Source: The 009 figures are from 009 Statistics Yearbook of the Customs ( Customs Press, 00), pp. -6; other figures are from Chinese Ministry of Commerce, Figure Euro vs. RMB Exchange Rate RMB year/month/day Source: Bank of ( Economic crisis tends to encourage higher trade barriers. According to Pascal Lamy, World Trade Organization s (WTO) Director-General, the European debt crisis, which sparked a globalised crisis, may lead to countries resorting to protectionism. The Chinese media has Linette Lim, Eurozone debt crisis may lead to more protectionism: WTO chief, March 9, 0.

4 reported that since the European debt crisis broke out, the EU has stepped up its protection by launching more anti-dumping investigation against. It is true that bilateral trade is affected by many factors, but it is certain that weakened demand from the EU, RMB s appreciation and protectionism, among others, have contributed to the sluggish growth of Chinese to the EU. As Table indicates, growth rates of Chinese to both the EU as a whole and some individual countries in 0 were lower than those of 00. In the first quarter of 0, the comparative figures all witnessed decrease. The largest negative growth rate was with Greece (0.7%), followed by Italy (9.%), Portugal (.8%), Belgium (.6%), Germany (.9%), France (0.%) and Ireland (0.%). Table -EU Trade Growth Rates (%) EU Germany France Italy Spain Greece Portugal Ireland Note: The 0 figures are the first quarter of the year. Source: The 009 figures are from 009 Statistics Yearbook of the Customs ( Customs Press, 00), pp. -6; other figures are from Chinese Ministry of Commerce, During crisis, investors tend to be cautious in moving their capital around the world. Furthermore, their investment behaviors are negatively influenced by the European banks which have also been affected by the debt crisis. But investment flows are determined by many factors, and the debt crisis is only one of them. That is why the figures about the EU s investment in fail to present a totally negative image. For instance, according to s Ministry of Commerce, the EU invested US$6.8 in 0,.6% less than the previous year; but in the first six months of 0, attracted US$. billion from the EU,.6% higher than the same period in 0 (see Table ). Table EU Investment in (in billion US$) US$ % US$ % US$ % US$ % Note: 0 is the first six months of the year. Source: Chinese Ministry of Commerce,

5 Of course, it is logical to argue that, without the European debt crisis, the EU might have invested more in. In other words, without the crisis, the figure for 0 should have been positive and the growth rate of 0 much higher. Regrettably, the European debt crisis is sometimes blamed for everything negative. For instance, a Taiwanese businessman in Shanghai, who has a spectacular taste for wine and has collected many high quality of the product, said that the reason why the price of the famous French wine produced by Château Lafite Rothschild went down dramatically recently was the European debt crisis. According to him, banks went bankrupt first and Lafite could not escape its doomed fate. An article on a Chinese web also points out that the European debt crisis was one of the scapegoats for the declining prices of high-quality wine around the world in 0. Some even say that the European debt crisis has also affected s stock market in a certain way. For instance, the Xinhua News Agency reported that, due to risk aversion associated with global capital movement caused by the European debt crisis, s stock market was very sluggish in the second quarter of 0. But the report did not elaborate how and to what extent the stock market was negatively affected by the crisis. III. Can Save Europe? Regarding the issue whether can save Europe or not, there are four major points of views among the Chinese.. should save Europe. This necessity is based on the following three reasons: First, has established the so-called Overall Comprehensive Strategic Partnership with the EU. In the Chinese cultural tradition, helping others to get out of trouble contributes to the accumulation of a person s good virtues. A friend in need is a friend indeed. Second, can raise its international position on the world stage as well as strengthen its soft power by offering a helping hand to Europe. should not miss this chance to tell the world that the Asian giant is different from what it was three decades ago. Third, can diversify the use of its more than US$ trillion foreign reserves by purchasing European bonds. So far, only invests in American debt and it is not wise to put all the eggs in one basket. In a sense, the European debt crisis has created a golden opportunity for to expand reserve diversification.. should not save Europe. Some Chinese netizens are not ready to accept the idea that can save Europe. They point out the fact that is still a developing country with more than 00 million people living below the poverty line, though its GDP has become the second largest in the world. Particularly, s per capita GDP is only US$000, compared with more than US$0 000 in the EU member countries. Many poor Chinese patients cannot afford to visit hospital whereas Europeans enjoy excellent cradle-to-grave welfare. needs 新 民 周 刊 0 年 第 0 期, 第 90 页 (Xinmin Newsweek, No. 0, 0, p. 90.) In 0 s poverty line was raised to 00 yuan from 7 yuan in 00 and, accordingly, the population under the new poverty line expanded from 7 million in 00 to 8 million in 0. The 00 yuan line, almost equal to US$ per day, is still much lower than the international standard. ( How to raise the quality of medical care is a serious problem in. Many patients complain that they have to

6 to sell 800 million T-shirts to earn enough hard currency to exchange for one Air Bus A80. Not only netizens but also some economists are not in favor of the idea that can save Europe. Han Zhiguo, an economist, even describes s wish to save Europe as a sheep saving the life of a wolf. It is interesting to note that, just when many Chinese people were debating whether should save Europe or not, Wenzhou, a coastal city in s Zhejiang Province, was in the limelight as many private enterprises there were having great difficulties meeting their huge debt obligations. Therefore, some netizens expressed their mind by saying that the Chinese government should save Wenzhou, not Ouzhou (Europe).. should not be a counter-productive helper. Some Chinese economists believe that what Europe needs urgently is not money, but reforms. Therefore, should outsiders like offer a helping hand to Europe, things would have been made worse. Some people even say that Germany and France have their own plans to pressure Greece and other countries in crisis to push forward reforms. If jumps in to help Greece and others, the strategy designed by Germany and France might be jeopardized.. blackmails Europe. Addressing the Summer Davos of the World Economic Forum on September, 0, in Dalian,, Chinese Premier Wen Jiabao said would continue to assist the EU to overcome the current debt crisis. He also mentioned that, during his telephone conversation with President José Manuel Barroso, he expressed his wish that the EU should look at in a strategic perspective by granting the market economy status (MES). Despite the fact that MES will automatically come to s door-step in 06, an earlier grant would be understood by as a token of friendship and sincerity from the EU. But Premier Wen Jiabao s words were misunderstood by some people in the west. His frank expression was interpreted as a friendly blackmail of the EU by. For instance, John Foley, a Reuters breakingviews columnist, believes that s friendly blackmail of EU may do the trick. It's no surprise that 's pledges of support for indebted trade partners come with strings. But Premier Wen Jiabao was unusually blunt about what he expects in return: to be named by Europe as a market economy. That would cost Europe little -- but that doesn't mean it should agree, writes Foley. IV. What is s Official Position towards the Crisis? s official position towards the European debt crisis is consistent and straightforward. On August, 0, Chinese President Hu Jintao told visiting French President Sarkozy in Beijing that is keeping a close watch on the situation and expects financial reforms by some European countries to be successful. He said, is confident about the European economy and the Euro. We believe Europe has the wisdom and capability to overcome its current difficulties and maintain economic stability and growth. In his written interview with the French newspaper Le Figaro on November, 0, President Hu Jintao said that is confident that Europe has the determination, ability and stand in line for the whole night to get registered for seeing a good doctor and their medical bills are an unbearable financial burden as the prices of medicine have been rising so quickly. Ouzhou is the pronunciation of 欧 洲 (Europe) in Chinese. Their pronunciations end with the same sound, zhou in the language. 6

7 resources to solve the debt crisis. The recently held EU summit produced some new measures and ideas, which demonstrated the will of Europe to work closely together for a solution. We hope these measures will help Europe stabilize its financial markets, overcome current difficulties and promote economic recovery and development. sincerely hopes to see stability of the Eurozone economy and the Euro itself, wrote the Chinese leader. On February, 0, during a meeting with President Herman Van Rompuy and President José Manuel Barroso, who were in for the th -EU summit, President Hu Jintao said that closely follows the developments of the European debt crisis and supports the measures the troika has taken to cope with the crisis. The European delegation said it appreciates s support for its integration, as well as s efforts to help the EU to deal with the crisis. At the BRICS summit in India in March 0, President Hu Jintao said that, it is highly necessary for the EU, the world s largest economy, to realize rapid economic recovery. According to him, the EU needs to rely on itself to resolve the debt crisis. He also said, We are confident that the EU has the wisdom and ability to cope with the crisis. At the same time, the international community will provide with assistance and help. Speaking on the phone with President Herman Van Rompuy and President José Manuel Barroso on October, 0, Chinese Premier Wen Jiabao highlighted the significance of international cooperation in the global financial and debt crisis, saying that supports EU s efforts to cope with the crisis and stands ready to beef up coordination and cooperation with the EU to contribute to a global economic recovery. He also said that the European debt crisis is not just closely related to the unstable recovery of the global economy against the backdrop of the international financial crisis, but also is a result of long-term accumulation of internal problems within the EU and the Eurozone. When German Chancellor Angela Merkel was in Beijing in early February 0, Premier Wen Jiabao told her that is undertaking feasibility studies regarding such issues as whether and how it can help Europe. He said that it is very urgent and important to solve the European debt crisis, and that attaches great importance to the issue from a strategic perspective as the global economic situation remains grim. According to the Chinese leader, since the EU is the world s largest economy and s largest trading partner, the bloc s financial stability, economic growth and integration not only affect Europe s fate and future, but also that of and the world. is considering deeper involvement in the efforts to address Europe's debt crisis, possibly through channels like the European Financial Stability Facility and the European Stability Mechanism, said Premier Wen Jiabao at a joint media briefing after talks with Chancellor Merkel. 6 Less than two weeks later, at the th -EU summit in Beijing, Premier Wen Jiabao told President Herman Van Rompuy and President José Manuel Barroso that s support for the In the phone to Premier Wen Jiabao, European Council President Herman Van Rompuy said he could not travel to in later October for the th -EU summit since he and European Commission President José Manuel Barroso needed to attend a series of EU meetings at the weekend over the European debt crisis, which was at its crucial moment. Premier Wen Jiabao expressed understanding to the EU side s decision to postpone the summit

8 EU to resolve the debt crisis is sincere and determined. He said that is ready to step up its efforts to help the EU with more strength. At the same time, also supports the EU s endeavor to strength fiscal discipline. In a joint news conference with European leaders on February, 0, Premier Wen Jiabao once again proclaimed that was willing to increase its involvement in attempts to stabilize the Eurozone. is firm in supporting the EU side in dealing with the debt problems. We match our words with our actions, he said. When Premier Wen Jiabao was inspecting Guangdong Province in early February 0, he told the local business people that needs to look at s relations with Europe at a strategic height. He said that Europe is s largest market and also a major source of advanced technology for. As a result, if can help Europe stabilize the situation, it is tantamount to helping. People must understand this point: help for Europe is the same as help for ourselves, said Premier Wen Jiabao. At a press conference of the National People s Congress on March 7, 0, Chen Demin, s Minister of Commerce, promised to import more from Europe. He said that recently there had been an increase of European to as well as a rapid expansion of Chinese investment, both green-field and M&A, in Europe. This is clearly the moral standing and generosity of the Chinese people, who can be counted on, said the high-ranking Chinese government official. V. How Can Help Europe? As a matter of fact, the Chinese character 救 ( jiu or save) has two different meanings. On the one hand, it means that a helper pulls the victim out of trouble completely; on the other, it also indicates that a helper only extends his assistance so that the situation of the victim will not become worse. Apparently, many people in only look at the first meaning of the character jiu. In other words, alone cannot pull Europe out of the crisis completely, but only offers a helping hand. There are five ways for to help, not save, Europe from sinking deeper into the debt crisis.. can import more from Europe, allowing it to create more employment opportunities as well as gain more financial resources to revive its economy. Chinese leaders have repeatedly made promises to open s market wider for European products and technology. During his visit to Spain, for instance, Wu Bangguo, Chairman of the Standing Committee of s National People s Congress, said that is willing to buy more Spanish products such as wine and olive oil. According to s Ministry of Commerce, s from the EU increased from US$7 billion in 009 to US$ billion in 0 (see Table ). In the first quarter of 0, as compared with the same period in 0, s to the EU declined by.8% whereas from the EU increased by.%. It would be more striking if the -EU trade statistics are compared with the growth rates of s total trade with the world in the same

9 period: 7.6% for and 6.8% for. If mean jobs, it can be concluded that has contributed positively to Europe s efforts to cope with the crisis.. can purchase European bonds. Needless to say, there are also divergent opinions regarding the issue. Some economists believe that it would be a win-win scenario if buys a certain amount of national bonds or the EU s bail-out funds, the European Financial Stabilization Facility (EFSF), because this action can diversify the structure of s own foreign reserves by increasing the share of Euro and reducing that of the US dollar in the assets. However, there are also other economists who discourage the government to do so. According to them, it is simply too dangerous for to invest in the European bonds. s official position on this issue is positive. Premier Wen Jiabao said that would continue to invest in Euro debt, a plan that falls in line with the principles of security, liquidity and value preservation. He said the second-largest economy in the world will use the IMF, the EFSF and the future European Stability Mechanism as the means of offering aid in the debt crises. At the end of October 0, Klaus Regling, EFSF s Chief Executive, visited Beijing to persuade to make investments in it. According to The Wall Street Journal, Regling dismissed suggestions that European leaders would be forced to offer concessions to in return for investment. I am not here to discuss concessions, he said, noting that had already bought EFSF bonds and got no special considerations. 6 The Financial Times reported that Regling noted that had been a good, loyal buyer of EFSF bonds over the past year and said that he expected that it would continue to view the Eurozone bail-out fund as a good investment. 7 Foreign media coverage about s purchase is not few. An article published in The Guardian on January, 0, reported that had already controlled % of Spanish sovereign debt. It also said, indicated that it planned to buy Spanish bonds at a crucial auction tomorrow, after purchasing Portuguese debt today, bringing much-needed investors confidence to the two troubled countries. According to The Guardian, Yi Gang, Deputy Governor of s central bank, the People s Bank of, told the British newspaper in an interview that takes a positive role in Europe s delicate times. We have been and are a consistent buyer and we have a long-term view of our investments in Europe, said Yi Gang. 8 However, it is almost impossible to acquire the authentic statistics about the amount of Chinese purchase of European debt. According to The Financial Times, at a press conference in London during Chinese Vice Premier Li Keqiang s European tour in early 0, Yi Gang declined to reply to the question three times: Can you confirm that agrees to buy 6 billion Spanish debt. Fu Ying, s Vice Minister of Foreign Affairs, who was chairing the meeting, said, No matter how you ask, Yi Gang will not tell you the exact number (of the amount of s The Financial Times reported that Regling arrived in Beijing hours after Eurozone leaders agreed that the EFSF would explore two plans to increase its remaining firepower from about 0 billion to up to,000 billion. One would be to offer investors insurance on selected government debt while the other would create a special fund in which countries such as could invest

10 purchase of Spanish bonds). Otherwise, it will greatly affect the financial market. But Radio International reported on May, 0, that, if 0~% of s foreign reserves have been used for investment in Euro bonds, then, by the end of March 0, the total amount would as much as 660 billion. Daily also reported on March, 0, that about 0% of s foreign reserves had been invested in Euro-denominated assets.. can contribute more funds to the IMF so that the international organization can have more financial power to help Europe. has long been interested in making more contributions to the IMF. At a press conference after the closing meeting of the Second Session of the th National People s Congress, Premier Wen Jiabao put forward four principles on this issue: ) The internal governance structure of the IMF needs to be reformed so as to better fend off financing and investment risks, balance rights and obligations of the member countries, and pay more attention to the interests of developing countries. ) Member countries should shoulder responsibilities jointly in accordance with their quotas. ) Other international financial institutions should be encouraged to resort to various ways of financing. ) Any member s increase of its contribution to the IMF should be considered in the light of its own national realities and be based on its voluntariness. On December, 00, the IMF s Board of Governors approved a package of far-reaching reforms of its quotas and governance, completing the th General Review of Quotas. Once the reform package is approved by member countries and implemented, it will result in an unprecedented 00% increase in total quotas and a major realignment of quota shares to better reflect the changing relative weights of the IMF s member countries in the global economy. hopes the IMF would urge its members to complete the review of the membership quota reform plan approved in 00 as soon as possible. A statement posted by the People s Bank of on its web, in April 0, said, Regarding increasing resources for the IMF on the basis of a consensus in the international community, will not be absent from the effort. 6 At the spring meeting of the IMF and the World Bank in April 0, some members of the IMF agreed to increase IMF resources by over $0 billion, almost doubling its lending capacity. 7 In her statement released on April 0, 0, Christine Lagarde, Managing Director of the IMF, said, This signals the strong resolve of the international community to secure global financial stability and put the world economic recovery on a sounder footing. These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members. She was grateful to, Russia, Brazil, India, Indonesia, Malaysia, Thailand and other countries that have indicated that they will be among the contributors. 8 Two major factors might explain why wishes to help the EU through the IMF. First, by making more contributions to the IMF, s position in it can be raised. As the world s second-largest economy, s quota in it ranks only sixth, far behind the US, Japan and The New York Times reported that the United States would not pledge any more resources to the IMF, arguing that Europe s problems are its own to fix and that the IMF has enough spare lending capacity. Timothy F. Geithner, US Treasury Secretary, was reported to say, Europe is a rich continent and has to play the dominant financial role in its own crisis. (

11 Germany (see table ). Second, safety can be guaranteed if s financial resources are mobilized for help on a multilateral platform. Table s Quota and Votes in the IMF as of July 0 (%) USA Japan Germany UK France Quota Votes Source: can make more investment in Europe so as to help generate more jobs at a time when austerity measures have incurred great social costs. The debt crisis has dealt a heavy blow to many European enterprises. At the same time, faced with fiscal austerity, some governments in Europe have to privatize the public enterprises. In Greece, for instance, the government has decided to carry out a weighty privatization program in which casinos, railways, real estate, betting, water companies, marinas, airports and other infrastructures will be sold for billion over a three-year period. Portugal was going to privatize its bank and insurance, airline, rail transport, postal, energy and paper industries to raise about 6 billion by 0. Since the end of the 990s, has been implementing the so-called going global strategy, encouraging Chinese investors to make overseas investments all over the world. Europe has political stability, a huge market, well-established infrastructures, etc. So it is an attractive investment destination for and other emerging economies. Economics textbook and the reality tell us that investment is a win-win outcome for both home and host nations. Chinese investment in Europe can create jobs, make tax contributions and promote local development. But some people in Europe fail to recognize this fact. As the Economist writes, Chinese investments make Europeans nervous that intends to use its amassed surpluses to buy European jewels at knock-down prices. According to a report published in July 0 by the European Council on Foreign Relations, a think-tank quite well-known for its long-standing criticism against, a kind of scramble for Europe is now taking place as purchases European government debt, invests in European companies and exploits Europe s open market for public procurement. Crisis-hit Europe s need for short-term cash is allowing not just to strike cut-price deals but also to play off member states against each other and against their own collective interests, the report says. No wonder the mentality of fear of has caused uproar when Chinese investor Huang Nubo intends to invest $00 million in Iceland to build a tourist resort. The project is accused of an official background as he used to work in the Publicity Department of the Central Committee of the Communist Party of and the Ministry of Construction. Worse, the investment is perceived to provide cover for s geopolitical interests in the Atlantic island nation, which is also a member of NATO

12 . can continue to hold its Euro-denominated assets. No matter what is the exact amount of Euro-denominated assets has acquired, the fact is that the long-lasting European debt crisis has shrunk the value of these assets. can dump them at any time. Undoubtedly, this action will further weaken market confidence, thus jeopardizing the EU s endeavor to quell the crisis. At a press conference of the National People s Congress on March, 0, Yi Gang said, We believe that Europe will ultimately overcome the debt crisis through their own efforts as well as with help from the international community, and will continue to be a long-term and responsible investor in Europe. He also revealed that there are three major factors affecting government s thinking when it tries to diversify the foreign reserves portfolio: safety, liquidity and potential revenues. Zhou Xiaochuan, Governor of the People s Bank of, was also reported to say that will always adhere to the principle of holding assets of EU sovereign debt. VI. Concluding Remarks The European debt crisis is detrimental to as its economy has been closely integrated with the world. cannot save Europe, but can offer a helping hand in several ways. Moreover, never intends to blackmail Europe in any way. Its help for Europe is in the interests of both sides. s official position towards the European debt crisis is consistent and straightforward: firmly believes that the EU is able to overcome the crisis and is ready to offer any help if it is necessary.