Europe Receptive to Chinese Support

When Greece was swept by debt crisis for the second time, the EU introduced a number of rescue measures, but, crippled by limited financial resources, these failed to lift the country from its plight. At that time, the international community speculated about the possibility of China giving a helping hand, and most observers predicted that China would inject capital to the International Monetary Fund (IMF). The U.S., however, made it clear that they did not support such a situation. U.S. Secretary of the Treasury Timothy Franz Geithner commented that the IMF's capital reserves were enough to cope with the crisis and that Europeans would not like to see their fate in the hands of those injecting capital to the IMF. Such an attitude comes from the U.S.'s desire for the U.S. dollar to maintain its dominant role in the world economy. The debt crisis the EU is suffering and the shaky status of the Euro will reinforce the U.S. dollar's dominance, but this would be threatened if China were to offer help in stabilizing the Euro.

The attitude of the EU was initially hesitant with regards to China's aid, but has now shifted to understanding and acceptance. The primary objective of Merkel's visit to China was to make China honor its commitment on rescuing EU. In late 2011, Nicolas Sarkozy called on his Chinese counterpart for support. In a speech to his countrymen he said, "If China, a country with 60 percent of the world's foreign currency reserves, decided to invest in the Euro instead of the U.S. dollar, we would have no reason to say no."

Francois Godement, a professor at the Paris Institute of Political Studies, also supports China's intervention. "Europe must not fall back on the illusion that it can treat its financial issues within a closed zone," Godement says. "It must become a sovereign international financial partner, moving beyond the passive and incomplete global currency that we have lived with since 2002. This implies seeking a deal with China, the world's largest holder of foreign currency reserves."

Observers have pointed out that after the European debt crisis, the prospect of China cooperating with EU in investment is promising. The sovereign debt crisis, however, is making the international financial market lose confidence in EU countries. International credit- rating organizations have downgraded several European countries and financial institutions. International capital investors have also become doubtful about the stability of the European market. Therefore, attracting foreign capital has become a major concern of many European countries. China's current investment in Europe is only a tiny proportion of the whole, with the non-financial direct investment in the EU only making up 0.2 percent of the total foreign investment in the EU. But this is set to change as the focus of China's overseas investment shifts from resources to technology and assets, making Europe's high-tech companies ideal candidates for Chinese investment.

European Debt Crisis: A Test of China-EU Relations

In this new era, debt-ridden European countries and China are seeing their economies become increasingly complementary, which will lay a solid foundation for the sustainable development of China-EU relations. Barriers to the development of these relations, however, undoubtedly still exist.

They include two voices, which when taken together suggest that the strategic importance of China-EU relations is in decline. They can be summarized as "Talk Europe down" and "Trap China with flattery."

The first voice is grounded in Europe's difficulties with the Euro, depressed economy, and delayed integration. There are even those who believe that the EU is on the brink of disintegration. People who talk the EU down focus on existing difficulties in EU but fail to see the prospects for its development. The European Union is taking positive measures to lift itself out of the unprecedented debt crisis. The reality is that the EU has the strength and ability to solve the crisis as long as the member countries stick together and make concerted efforts as a unified whole. Moreover, in precipitating necessary reform, the crisis might indeed result in the EU's strengthened development. Early this year, the EU reached an agreement on the EU "financial contract," which marks significant progress. The step from unified currency to unified financial policies is one that must be taken for the EU to become more integrated, and indicates that the EU is far from disintegrating. During his official visit to Ireland from February 18 to 19, Chinese Vice President Xi Jinping expressed China's confidence in the EU, saying, "It is true that the EU now faces some difficulties and challenges and there are some pessimistic voices about Europe in the world. But the EU has a high degree of political consensus on overcoming difficulties and crisis and on preserving and advancing European integration. China does not think one should 'talk down' or 'short' to Europe."

The second voice, that of attempting to "trap China with flattery," stresses that China enjoys the world's second largest GDP and the largest share of the world's foreign currency reserves, and since the EU is in decline it has no use for cooperating with those countries. People speaking with this voice usually have ulterior motives, and are in fact twisting reality to fit their goals. If one takes a closer look at China's overall strength, especially those figures on per capita, it can be concluded that China is still a developing country. The interdependence and potential to complement each other that exists between China and the EU, therefore, has not changed.

The European debt crisis will determine the future of bilateral ties. With this in mind, it seems even more important for the two sides to focus on the strategic possibilities of China and the EU's relationship. The coming months will be a test of political wisdom and the intent of China and the EU to enhance trust and achieve mutual benefit as a solution to the European debt crisis.

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Shen Xiaoquan is a senior research fellow at the Center for World Affairs Studies of Xinhua News Agency.