Beijing’s Christmas gift to Europe

By George Chen
December 23, 2010
Beijing’s Christmas gift to Europe
If the heavy snows engulfing London’s Heathrow Airport are the last
thing Europe wants to see, then a big cheque from Beijing could be the
best Christmas gift the continent — once the centre of the world, but
apparently no longer — could receive this year.
The Chinese government is ready to buy 4-5 billion euros (US$5.3-6.6
billion) of Portuguese sovereign debt to help the country ward off debt
market pressure, the Jornal de Negocios business daily reported on Dec.
22. Without citing any sources, the paper said a deal reached between
the two governments would lead to China buying debt via auction or in
the secondary market during the first quarter of 2011.
The news of Beijing seeking to invest in Portuguese bonds soon helped
the euro gain ground against the U.S. dollar and bounce up from an
all-time low against the Swiss franc on Wednesday. It also boosted U.S.
investor confidence in bank stocks at home. The potential new credit
crisis in many European nations such as Greece, Spain, Portugal, Ireland
and even Italy has been a growing global concern for capital markets.
Beijing’s help could certainly ease such worries to a large extent if
the news can be officially confirmed. China’s central bank has chosen to
remain silent on the report, so far.
Premier Wen Jiabao, often dubbed Grandpa Wen at home for his easy-going
personality with ordinary people, visited a number of European countries
including Portugal and Greece earlier this year. At the time, Wen’s trip
was already considered a new sign of China’s growing influence in
Europe, with Beijing expected to help with its national debt problems as
nobody would think of turning to the United States for such a role in
the wake of the financial crisis.
Will Portugal be the last European nation to get Beijing’s help?
Unlikely. Greece is also understood to be on the waiting list to for
capital for its new sovereignty bond issue. However, if such aid
continues, Beijing may face twin pressures from the United States and
its own people.
Beijing has complained about the U.S. government’s so-called “carrot and
stick diplomacy” since the days of Mao Zedong, the country’s first
Communist state head, Now it’s becoming less arguable whether China will
take the same approach with so-called “friendly countries”. The United
States may monitor Beijing’s financial aid for Europe closely to check
for links between the money and human rights issues.
Domestically, Beijing is concerned about social stability, in particular
after inflation hit repeated highs this year. Some local media reports
suggested that university students in some third- and fourth-tier cities
had started to protest about increasingly expensive food bills on
campus. Does this remind you of anything from more
recent Chinese history?
On the other side, the Chinese economy itself is far more open than when
“New China” was founded by Chairman Mao in 1949, as the country still
relies heavily on external trade. When we look forward to 2011, the
global market environment to a very large extent is clearly linked to
developments in the European debt issue. Beijing is helping Europe
extricate itself from this potential new credit crisis as it also wants
to avoid any negative external impact on its own economy next year.
Something pretty interesting I found out this week about China, which I
also take as a good sign of Beijing’s more open-minded attitude towards
the world: When China’s top banking regulator Liu Mingkang met a group
of Hong Kong reporters briefly in Beijing just few days ago, Liu said
“Merry Christmas” and asked the Hong Kong media types to pass on his
wishes to the people of Hong Kong.
Liu studied in London for some years in the late 1980s, so he must know
what Christmas means in the West, even though Chinese Communists should
not believe in any religion. Just five or six years ago, Chinese media
were still very careful about reports concerning Christmas. Even if they
mentioned it in articles, it should not be carry any
religious overtones. Not so many years ago, a Communist official could
even be sacked or demoted for speaking about Christmas or related
matters in public if he was not careful.
Today, Liu wishes you all a merry Christmas and Beijing is actually
offering the whole of Europe a Christmas surprise via its commitment to
support Portugal’s debt issue. Clearly, the world has truly changed
within just few decades. So, are the rules of the game now being set by
global politics and markets?

Portugal

By George Chen
The opinions expressed are the author’s own.

If the heavy snows engulfing London’s Heathrow Airport are the last thing Europe wants to see, then a big cheque from Beijing could be the best Christmas gift the continent — once the centre of the world, but apparently no longer — could receive this year.

The Chinese government is ready to buy 4-5 billion euros (US$5.3-6.6 billion) of Portuguese sovereign debt to help the country ward off debt market pressure, the Jornal de Negocios business daily reported on Dec. 22. Without citing any sources, the paper said a deal reached between the two governments would lead to China buying debt via auction or in the secondary market during the first quarter of 2011.

The news of Beijing seeking to invest in Portuguese bonds soon helped the euro gain ground against the U.S. dollar and bounce up from an all-time low against the Swiss franc on Wednesday. It also boosted U.S. investor confidence in bank stocks at home. The potential new credit crisis in many European nations such as Greece, Spain, Portugal, Ireland and even Italy has been a growing global concern for capital markets.

Beijing’s help could certainly ease such worries to a certain extent if the news can be officially confirmed. China’s central bank has chosen to remain silent on the report, so far.

Premier Wen Jiabao, often dubbed “Grandpa Wen” at home for his easy-going personality with ordinary people, visited a number of European countries including Portugal and Greece earlier this year. At the time, Wen’s trip was already considered a new sign of China’s growing influence in Europe, with Beijing expected to lend a hand to its national debt problems as nobody would think of turning to the United States any more for such a role in the wake of the financial crisis.

Will Portugal be the last European nation to get Beijing’s help? Unlikely. Greece is also understood to be on the waiting list to get Chinese money for its new sovereignty bond issue. However, if such aid continues, Beijing may face twin pressures from the United States and its own people.

Beijing has complained about the U.S. government’s so-called “carrot and stick diplomacy” since the days of Mao Zedong, the country’s first Communist state head, Now it’s becoming less arguable whether China will take the same approach with those so-called “friendly countries”. The United States may monitor Beijing’s financial aid for Europe closely to check for links between the money and human rights issues.

Domestically, Beijing is concerned about social stability, in particular after inflation hit repeated highs this year. Some local media reports suggested that university students in some third- and fourth-tier cities had started to protest about increasingly expensive food bills on campus. Does this remind you of anything from more recent Chinese history?

On the other side, the Chinese economy itself is far more open than when ”New China” was founded by Chairman Mao in 1949, as the country still relies heavily on external trade. When we look forward to 2011, the global market environment to a very large extent is clearly linked to developments in the European debt issue. Beijing is helping Europe extricate itself from this potential new credit crisis as it also wants to avoid any negative external impact on its own economy next year.

Something pretty interesting I found out this week about China, which I also take as a good sign of Beijing’s more open-minded attitude towards the world: When China’s top banking regulator Liu Mingkang met a group of Hong Kong reporters briefly in Beijing just few days ago, Liu said ”Merry Christmas” and asked the Hong Kong media types to pass on his wishes to the people of Hong Kong, the former British colony.

Liu studied in London for some years in the late 1980s, so he must know what Christmas means in the West, even though Chinese Communists should not believe in any religion. Just five or six years ago, Chinese media were still very careful about reports concerning Christmas. Even if they mentioned it in articles, it should not carry any religious overtones. Not so many years ago, a Communist official could even be sacked or demoted for speaking about Christmas or related matters in public if he was not careful enough.

Today, Liu wishes you all a merry Christmas and Beijing is actually offering the whole of Europe a Christmas surprise via its commitment to support Portugal’s debt issue. Clearly, the world has truly changed within just few decades. So, are the rules of the game now being changed by global politics and markets?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: China’s President Hu Jintao (L) shakes hands with his Portuguese counterpart Anibal Cavaco Silva at Belem presidential palace in Lisbon November 6, 2010. REUTERS/Luis Felipe Catarino/Handout

12 comments

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this is a wonderful break for portugal,alot of employees within their central bank and finance departments.sure the chinese have good reason to lend especially 10 year bonds.they should double their money by the time its finished??(i think).but needs must, as they say.my only issue is if we accept financial assistance,it makes it harder to push issues such as tibet,human rights,but if china has cash to dispense europe should grab it,beats it going to places like iran, north korea,burma.its easy to have a principled view of the world.right is right, but dragging countries to democracy does not work, its baby steps that have results. happy x-mas portugal.

Posted by radray | Report as abusive

[...] to Health — ABC NewsWhy China Won’t Save Europe — The Source/Wall Street JournalBeijing’s Christmas gift to Europe — ReutersCan China play Santa for the euro? — [...]

U.S. foreign influence is pretty thin right now. This was a very well played by China. This is precisely the type of move China needs to make to counter the U.S. economically and politically, and really, other than U.S. nationalists, who can complain. Europe is caught unable to debase its currency, QE-2 will erode the dollar and drive up commodity prices. China shifts from buying T-Bills to Euro debt, and the U.S. is stuck with stag-flation (again).

Posted by ARJTurgot2 | Report as abusive

Christmas is widely celebrated in China now. Not as a religious event, but as a party. Kids are happy to get gifts. And any corporation or government organization worth anything will through a huge party so the leadership can all get smashed together and rent some hookers.

Christmas decorations can be seen on shops all over every Chinese city and town. They are up from the end of november to the beginning of March. Every store plays horrible Chinglish christmas music.

Posted by kc10man | Report as abusive

Are you kidding us? This is not a market related change.
The Chinese do not have to operate under the same financial market scrutiny that the rest of the developed world has to operate under. Their yuan does not float freely which affects their currency, interest rates and monetary policy. Plus their money supply is growing way faster than the United States.
Plus they $3 Trillion dollars in reserves and 750 million people living on $2 per day so why don’t they spend some of that money helping those millions of poor people in their own country instead of trying to buy the world so they have controlling interests?

Cheers

Posted by mlknows | Report as abusive

“China shifts from buying T-Bills to Euro debt, and the U.S. is stuck with stag-flation.”

Yes. The goal of QE2 was first to drive investors out of Treasuries, then to depreciate the dollar and all dollar-denominated debts. This is a necessary step for a US economy that is awash in debt and unable to sell its goods abroad (or even buy its own goods in competition with Chinese manufacturers). Unfortunately it will come with some pain.

As mlknows observed, China is not strictly controlled by market forces. Rather, they manipulate the markets to their own purposes. For this reasons, the US could not rely on market forces to correct the persistent imbalances — China was actively preventing that.

“Plus they $3 Trillion dollars in reserves and 750 million people living on $2 per day so why don’t they spend some of that money helping those millions of poor people in their own country”

How? Feed them paper? Any attempt to do this would shatter both the Chinese economy (destroying the export drivers of their economy) as well as the global economy. You can’t simply trade $3 trillion of investments for $3 trillion of goods without driving down the price of those investments and driving up the price of those goods.

Posted by TFF | Report as abusive

Food is rising in costs everyhere not just China. At last 10% in New Zealand where I live. Inflation is going to be rampant in 2011. 2010 was just the beginning.

Posted by diddums | Report as abusive

When Grandpa Wen (PM) was in Brussels, last Oct, I said he’d more or less given de jure support to euro stability and EU Commission.

Portugal is a classical case, a bit small FX fish, to secure China’s official support.

Greece is already receiving Chinese FX commitment and future development of Pireaus container port – which I predict will become HK of Europe.

What does this action by BoC mean in terms of global macro developments?

QE2 will surely work against Yuan valuation by FX market.
Geopolitics is taking over global FX developments, $4T daily market, to try and fix Euro stability – ie.China’s largest trading partner today.

EU officially dislodged human rights issues when it comes to trade and development. It has its own political platform -unlike State Dept.

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Posted by inkatrail091 | Report as abusive

I think that the Chinese Government and the Chinese people are much more open-minded the Us and European Governments and people. They are not shut down by twisted notions such as human rights, or that all countries should be democracies at all costs even at the cost of massacring hundreds of thousand people in Vietnam, Iraq, etc. They are more humane and look after their own people far better that the US and Europe. Though they do not meddle in the internal affairs of other countries because they believe that such meddling would not solve the problems, they do care for them too. Look at the African continent where the economic growth rates have double over the last decade compared to the previous two decades thanks to some extent to China. Look at Greece and Portugal where the Chinese Government tries to do what it can. In China itself, the standard of living of the population in general has improved dramatically and hundreds of millions of Chinese no longer suffer from poverty. China also look after its minorities very well – Tibetans, Uighurs, Mongolians, Manchus, Miao, Hui, etc. Tibet is no longer isolated from the rest of China. Several airports have been built, a railway line is in operation since 2005 and many highways have been constructed. Many rich cities in Eastern China are providing aid to cities in Xinjiang in an attempt to lift the economic development of these western cities. The Chinese Government and the Chinese in general are much more pragmatic.

Posted by Jeanmichel | Report as abusive

It is a chinese gift to Europe, that’s true!
But why did China decide de back Portugal (and Greece previously)? The chinese government had the choice to inject money in their national economy to support domestic demand. This has been done in 2009 when China flooded its economy with more than 550 million dollars and the result was an inflating real estate bubble.
Europe is still the second market for China. A slight financial crisis could cause chinese exports towards the EU to decrease sharply.

Posted by MarkHitti | Report as abusive

The rise of China and its economy is good for the world. The “third world countries” have long been exploited, used and abused by the West in particular by the U.S., so today we have no sympathy for them what so ever.

We certainly welcome China which is more open minded and trusrworthy than the West.

Chinese do not interfer with local issues they come and do the job and leave. Unlike the Americans who want to police the world when they cant even police their own.

I am so happy that the US is no longer influencial and from here its only a decline and eventually it will become a third world country it self.

China must invest more time, resources and diplomacy on its neighbors in particular Korea and Japan. If it can please these two and influence them, the U.S. will completely collapse.

Because what China lacks is right next door. If China is to improve its technology and advance its scientific knowledge, it has to forgive Japan and open new diplomatic channel.

It has to let the past be the past, China must not be angry China. It must not use force against Taiwan but let the people of Taiwan make their own decision. With the decline of US influence in the region, Taiwanese will rethink and rejoin their big brothers.

But they will resist arrogant and angry China, China has to be humble.

The U.S. is trying to stir China using North-South Korea indifferences, Japan and Taiwan. China has to satisfy the Korean people by disarming the North and guranteeing the north, the south will never invade them. They should reopen talks and the border. South should double its assistance for the North.

China has to focus on the issues its next door nor Portugal. North Korea needs the bailing out, those billions should have went to the Koreans.

The south Koreans need to relax and tell the US to go home because they want you to kill your own brothers. Why aint there south and north United States?

Koreans your best interest is always with your own and with your neighbors.

Wish Korea, Japan and China happy future and unity.

Lets stop the US monster!

Posted by Somali_Pirate | Report as abusive

i don’t really remember the time when Chinese government censored anything about Christmas. what i remember about Christmas is that my family and i would always celebrate for this date ever since i was 4 or 5 years old (it was 10+ years ago, around -96 or -97). and the local media never hid any reports during the Christmas

by the way, not too many communist officials are free-thinkers today. most of them believe in buddhism. In fact, people should have some beliefs isn’t it?

Posted by L.Melanie | Report as abusive

[...] to Health — ABC NewsWhy China Won’t Save Europe — The Source/Wall Street JournalBeijing’s Christmas gift to Europe — ReutersCan China play Santa for the euro? — [...]