China to the rescue?

The two biggest world exporters have signed trade deals worth $15bn (£9bn). The Chinese Premier and German Chancellor were targeting an increase in bilateral trade to £178bn over the next five years. Premier Wen has also offered support to some of the European countries struggling with their debt. Despite this offer of support, there is something in it for the Chinese economy. China’s foreign exchange reserves are at a record high, but about 25% are invested in euro-denominated assets, hence China has a very strong interest in preventing the collapse of the euro. Furthermore, it is also interested in diversifying its export market to reduce its reliance on US markets. This is particularly important given the growth in protectionism in the US economy. Mr. Innes-ker said:

“China’s dependence and exposure to the US dollar creates issues for its own economy to the extent that it’s a hostage to US monetary policy.”

China’s interest in the European economies may provide an opportunity for the UK economy, as it is a country with ideal investment conditions and is already one of China’s most important trading partners. David Cameron, in a meeting with Wen, has said he wants bilateral trade to increase to £62bn by 2015. The amount is nothing in comparison to the trade deal between China and Germany, but still a significant potential sum for the UK economy. The following articles consider the Chinese economy and its role in the global environment.

Self-interest in China’s helping hand Asia Times Online, Jian Junbo (30/6/11)
China and Germany ink $15bn trade deals as leaders meet BBC News (29/6/11)
Chinese leader’s visit to Germany ends with large trade deals The New York Times, Judy Dempsey (28/6/11)
China offers helping hand to Eurozone Guardian, Helen Pidd (28/6/11)
Rights, trade to dominate Germany-China talks Associated Press, Deborah Cole (28/6/11)
China promises EU ‘helping hand’ with debt crisis Reuters, James Pomfret and Stephen Brown (28/6/11)
We still don’t grasp how little we matter to China Independent, Hamish McRae (29/6/11)

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