China to the rescue?

At the recent World Economic Forum's "Summer Davos" meeting in the northeastern Chinese port of Dalian, Wen Jiabao said that China wanted to "extend a helping hand and increase our investment" in the EU. While Zhang Xiaoqiang, the vice chairman of the National Development and Reform Commission, said that China would continue to buy European bonds within its capacity.

However, Chinese experts regard the offer of help with some skepticism. Huang Zemin, a Shanghai-based economist, says the EU should not expect too much from China and that it makes little sense for China to invest in European bonds from an economic or political point of view.

"They are very different from the American ones and the risks are considerably higher," he points out. "One currency is shared by 17 countries, but there is no unified economic and financial policy. This is a serious problem. I see the future of the euro as very unstable and think it makes much more sense to invest in gold."

Currency reserves not readily available

Moreover, says Huang, China might seem attractive with the biggest currency reserves in the world, but these are not readily accessible since they have been invested. "We have 3,200 billion dollars in total but over half has been invested in US bonds. The China Investment Corporation has also used some of it on international markets. We have also bought Japanese bonds."

Meanwhile, commentaries in the Chinese media are wondering how China, which has so many problems of its own, can be expected to rescue the world’s rich industrial nations. Most reports say it would be impossible even if China really wanted to.

However, what is clear is that it is in China's interest to help save the euro. The European Union is China’s biggest trade partner - last year, the 27 members bought Chinese exports worth around 282 billion euros, almost 20 percent more than in 2009.

Alternative to the dollar

Moreover, Beijing is seeking a credible alternative to the US dollar and has often said the global currency system should not depend on the dollar. "The euro is an important counterweight to the dollar," says Gu Xuewu from the Center for Global Studies at Bonn University. If the euro collapses there will be no currency that can challenge the dollar's dominance and the yuan will have no chance of becoming a significant global currency, he adds. "That's why China cannot just look on as Europe plunges into a deeper crisis."

China can also use the euro crisis to reiterate certain demands - it has called on the EU to recognize it as a market economy and to lift the arms embargo imposed after the Tiananmen Square massacre in 1989. Such demands have raised concern in the EU that Beijing could end up dictating policy, and certain observers wonder how the issue of human rights in China might be approached in future.

Gu Xuewu thinks such concerns are unfounded as the Chinese know how to separate the two issues. "There have been no examples in the past of China not doing business with the EU because the human rights situation was criticized," he says.

Author: Yuhan Zhu / act
Editor: Grahame Lucas