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Tuesday, October 25, 2011

Will Beijing get the last laugh?

Stories about Chinese involvement in the eurozone rescue are hardly new, after all China’s sovereign wealth fund, the China Investment Corporation has got over $400 billion in assets to invest, and the eurozone is in desperate need of fresh capital. There are a number of options available; China could invest in infrastructure projects, assist in the bank recapitalisation programme or buy up even more government bonds.

A couple of weeks ago the Sunday Times reported that in return for such investments, China was secretly seeking additional commitments on budget cuts and structural reforms (including on welfare and pensions) among member nations of the currency bloc. The paper cited a source close to the recent G20 talks in Paris as saying: "China wants to be sure that Europe knows the size of the hole and that it won't get any bigger before they agree to fill it in”.

In addition, it has long been speculated that in return for bailing the eurozone out, China could obtain significant political concessions, such as the lifting the EU's arms embargo and be given full market economy status. However Germany's (and Europe's) most widely read tabloid Bild today opted for a more tongue in cheek (although some would say tasteless) take on the matter, which we have included above.

Given the perilous state of the eurozone, we fear that it may be the Chinese who have the last laugh.

1 comment:

Peripatetic Scribe said...

Considering the fire-power of the Chinese sovereign wealth fund, if I were responsible for investment, I too would want some significant guarantees for the safety of any amount of money I invested. I think "caution" is their watch-word and better this than to run blindly into a dead end, kissing goodbye to any level of hard-earned wealth!