FEB 21 — With the European Union in fiscal and financial difficulties, it has redounded on the rest of the world to give it an economic lift. Since the United States is stretched to the brim, attention has turned to Asian countries with huge surpluses. Given its more than US$3 trillion (RM9 trillion) in reserves, it is not surprising that many EU policymakers have looked to China.
Yet China has been cautious. It was only last month that Premier Wen Jiabao finally affirmed the importance of assisting the EU. Throughout the economic and financial crisis in 2010-11, China has steered away from making an outright commitment that would draw Beijing into Europe’s financial quagmire.
There is every reason for Beijing to be extremely cautious. First of all, the EU has framed the fiscal problem as a “strategic opportunity” for China to invest in EU bonds, treasury bills and government backed papers. In other words, the EU has peddled a risk-free investment scenario.
China, obviously, does not buy that optimism since the EU’s economic and financial troubles have been around at least since the 1980s, with tax collection unable to keep up with fiscal spending.
Secondly, the EU has characterised the crisis confronting Greece as a blip in the larger scheme of European integration: If more funds can be found to redeem Greece, the rest of the EU would be back on its feet again. Once again, China has ample doubts here. Germany’s debt is 81 per cent of GDP, according to the International Monetary Fund (IMF).
The weakness of Germany as financier of last resort makes it potentially risky for China to take on a larger role. Expectations of Beijing would grow proportionate to the progressive indebtedness of Germany.
Attraction of Asia vs Europe
Finally, the EU has compared China’s assistance in a self-serving manner to a potential Marshall Plan. However, when the original Marshall Plan was conceived, the goal was to salvage Europe from the ruins of World War II; it was a serious humanitarian crisis.
The current fiscal and financial problems of the euro zone are due to the insistence on adopting a single currency. The latter strengthened the national currencies of Greece and other member states disproportionately, leading to a buying spree that has now emptied the reserves of the fiscally-challenged countries. China is now being expected to overlook this policy faux pas.
Keep in mind there is no lack of investment opportunities in Asia. According to the Asian Development Bank, the seven Asian economies of China, India, Indonesia, Japan, South Korea, Malaysia and Thailand alone will account for 45 per cent of global GDP by 2050.
Since Asia is already en route to being the No 1 economic centre of the world, all Beijing has to do is bide its time in this region even as it is helping to build it, in the form of more roads, bridges, pipelines and ports. The Greater Mekong Sub Region, for example, is already growing under the influence of China.
In addition, dollar-for-dollar, China has a higher probability of absorbing Asian countries into its orbit of influence than it would with any one of the EU member states now in financial difficulties.
The member states of the EU practise a system of democracy, regardless of how imperfect it may be. At some point they would be compelled to attack China ideologically, rather than be grateful for its largess. Moreover, the EU is much closer to the US than it can ever be with Beijing. The fact that none of the EU countries have recognised Taiwan is yet another lack of political incentive for China to bankroll the EU.
Why China should help
But come what may, China must help the EU for three strategic reasons — none of which is pecuniary.
First, like it or not, the EU has served as an example and inspiration to Asian regionalism. To become a regional power or even a superpower, China must sustain the belief that Asian regional integration is plausible and important. If the EU is allowed to wallow and collapse, Asian regionalism could see the beginning of the end too or be indefinitely delayed.
Secondly, the EU’s failure, coming on the heels of the US withdrawal from Iraq and Afghanistan, may embolden all religious and secular extremists everywhere who would celebrate it as the surest indictment of the European social model of democracy. To the degree this pernicious view takes hold, China could be sent reeling in places like Tibet and Xinjiang, which have time and again harboured the wish of seceding from the “centre”.
Thirdly, though the dissolution of the EU might effectively be seen by some as the fall of Western Europe, countries like Japan and South Korea would not necessarily get on the bandwagon with China. They might, in fact, arm themselves further or reinforce their security relationship with the US or with each other. China would find itself locked in a constant face-off with South Korea and Japan, at a time when Beijing is trying to demonstrate to the world its “peaceful rise”. — Today
* Phar Kim Beng is director of the Centre of Trans Asia, Asian Strategic and Leadership Institute in Kuala Lumpur.
* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.
