China can’t be expected to lead a rescue of Europe’s teetering economy. But as the risk of pain in Asia grows, some kind of concerted effort is looking essential.
The leaders of debt-ridden Europe have got Asia on speed dial. The answers to the solvency nightmares of Greece and Europe’s other struggling economies, be they the purchase of bonds or contributions to the European Financial Stability Fund (EFSF), seem to European leaders like France’s Nicolas Sarkozy to lie at least in part in Asia’s cash-rich, high-growth nations.
Of course, the money trail that Greece and other eurozone debtors are now obliged to follow doesn’t only lead to Asia: the International Monetary Fund (IMF), the European Central Bank (ECB), the European Union (EU), the G-20 and the United States all have critical roles to play in restoring the economic equilibrium. There are many potential lifelines.
So where does Asia come in? Nowhere, many Asian leaders are arguing, pointing to the political folly of still predominantly poor countries like China or India spending their hard-earned reserves on restoring the comfortable lifestyles of better-off Europeans. However, a more self-interested approach would be to ask how vulnerable Asian economies really are to the eurozone’s potential failure, and to determine whether Asia, for its own sake, should take action to stop the European ship from sinking.
The global financial crisis of 2008-9 was instructive in revealing the extent to which Asia’s economic fate is still tied to that of the West. It became clear then that Asia wasn’t immune from catching the West’s colds, and that the continent was vulnerable through its reliance on a mixture of American and European trade and capital. Only a colossal stimulus package saved China, for example, from following the United States and Europe into crisis. So would things be any different this time around?
As of late 2011, Asia had only experienced marginal downgrades in expectations for the year ahead. The Asian Development Bank (ADB) has trimmed its regional growth forecast for next year from 7.8 percent to 7.5 percent; China is expected to grow by 9.3 percent, less than the 9.6 percent previously anticipated; and India’s growth outlook has dipped from 8.2 percent to 7.9 percent. These are hardly forewarnings of another 2009-style slump, never mind something even worse. Unfortunately, growth forecasts are fluid – and they could be revised much further downwards should Europe fail to effect a coherent rescue plan.
“If the current situation and political debate in Europe didn’t deteriorate further, Asian exports can continue to grow although with a bit of moderation,” explains Minsoo Lee, Senior Economist at the ADB. “In this case, the impact on Asian exports growth may still be kept limited. A slowdown in Europe and the U.S. can be compensated by healthy private consumption and investment, supported by growing intra-Asian trade. On the other hand, a disorderly resolution for the EU followed by another financial crisis could provoke a large negative impact on the U.S. and the world economy. In the case where the U.S. and EU slip into another recession, Asian exports will also be affected negatively.”
Rajiv Biswas, Chief Asia Economist at IHS Global Insight, subscribes to the view that Asia’s trajectory remains dependent on how Europe’s crisis plays out. Biswas regards Europe as being at a fork in the road, with the “muddle through scenario” on the one hand and the “chaotic scenario” on the other. “The muddle through scenario can enable Europe to have a mild recession and not a deep recession,” he explains. “In that scenario, Asia comes out fairly well, growth forecasts only slightly downgraded, they’re still relatively resilient.” This option is currently the more likely, Biswas believes, so long as the EFSF can be expanded beyond its current €1 trillion capacity, and provided the new Italian government implements convincing reforms. “However, if we go into the more chaotic scenario,” he warns, “bond yields rise, Italy starts to default, and you go into a more dangerous meltdown scenario. That would hurt Asia very badly.”
Photo Credit: World Economic Forum
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spotlighter
Wrong title. It should read:
Will Europe Rescue China?
Will Europe Rescue China?
Will Europe Rescue China?
Will Europe Rescue China?
I have my doubts.
ricky
for all those who think ASOKA is an Indian, please understand he is not. He is just pretending to be an Indian to let people ridicule us.
ALMOST every Indian accepts that we dont have the resources to help europe. We have many problems here at home which need to get solved.
And talking about expenditure on defence weapons, that is necessary. We have a neighbour which is quite often referred to as the most dangerous place in the world. And ofcourse, we are worried about China. We have a long standing border dispute with it.
China attacked us out of the blue in 1962. We cant really attach much value to its claim of ‘peaceful’ rise.
Raj
And you are a real Indian? What kind of Indian name is “Ricky”? I have never heard such Indian name. Before you pretend to be an Indian and try to speak for us, have the decency to use an Indian name before you post. We don’t need a white man to speak for us, we can take care ourselves, thank you very much. What is wrong with rescuing Europe and save the world. India is Great. India must do great things to match our status as the Superpower of the world.
JUSTSAYNO
In general I think it would be good for China an export country to help wealthier nations elsewhere for obvious reasons. There would be no one to export to should US and Europe fail.
However, EU needs more than just money which Asia could supply; the EU needs a coherent plan and strong leadership to make it all work. As it is, I am not entirely sure the whole Eurozone idea works. It doesn’t make too much sense for poorer Eurozone nations to share currency with powerhouses like Germany and France, because the former would then lose the ability to control their currency. Germany and France on the other hand, want to be the leader of the Eurozone but they don’t want to spoon feed the PIIGS. The thing is that you can’t have your cake and eat it too; if Germany and France want that power then they must bare the responsibility as well.
Entosphenus tridentatus
You’re correct. If the host dies, the parasite can’t eat. It is not the goal of the parasite to kill the host, since that could mean its own death.
captainjohann
who is the host and who is the parasite?
ricky
I plead to the moderator: please let me put this up. Someone is trying to be extra smart here. Someone is trying to discredit/ridicule us Indians instead of giving something of value.
Dont pretend to be an Indian @asoka
ricky
only china could help europe. It has the resources and also the incentive. Europe is and has been a huge market for chinese goods.
Asoka
“only china could help europe. It has the resources and also the incentive. ” Only an arrogant and ignorant Chinese could have said such thing. Don’t ever pretend to be an Indian and speak for us. We know you are a Chinese.
“only china could help europe.” What about India? We have the largest foreign reserve in the world. And our citizens have trillions and trillions of dollars saved in the secret Swiss bank accounts. And we have tons and tons of gold in our central bank’s vault. Indians consume over 50% of world’s gold each year. This is how rich we are.
I am tired of hearing that India is behind China and that she will one day catch up to China. Let me tell you the Truth India is already a global superpower. Forget about G2, G8, G20, India is class by itself. India is G1, the lone hyper-superpower in the world.
Let me tell you something about our Great Country India.
1>India Largest Democracy in the world-: Population: 1.2 Bn. India’s population will surpass china’s by 2030. India has the largest middle class in the world –> Population superpower.
2>India the most industrialized country. India produced the cheapest car, the Tata Nano. Tata owns the European car makers Jaguar, Land Rover. Mittal Steel is the world’s largest steel producers. India’s IT industry is second to none. –>Industrial superpower.
3> India never lost a war in its 8000 years history. –> War superpower.
4> India never invaded other country in history. –>Peace Superpower.
5>Largest english speaking nation by 2010. The world’s biggest back office. world’s largest skilled workforce. World’s largest working age population. –>People superpower.
6> Over 800 movies made anuualy–bollywood overshadows hollywood. –> Movies superpower.
7> 6 Miss Universe / Miss world titles in last 10 years: –> Beauty superpower
8>Per capita income US $9550 ; 2% live in poverty, literacy levels at 88%. Over 1 Billions middle class consumers. India has the world’s largest number of millionaires and billionaires: –> economic superpower!
9>The Indian Diaspora
38% of Doctors in AMerica are Indians
36% of NASA employees are Indians
34% of Microsoft employees are Indians
28% of IBM employeesare Indians
17% of Intel employees are Indians
13% of Zerox employees are Indians
–> Intellectual superpower!
10>India will eventually become world’s largest economy in 2083–Goldman Sachs
11>India is fastest growing GDP’s in the world, averaging over 10% growth since 1990.
12>India’s GDP will exceed that of Italy in 2020, France in 2020, Germany in 2025 and Japan in 2035 — USA in 2050, China in 2082 –Goldman Sachs
13>India’s Foreign exchange reserves history
1990-91 $40 billion
1995-96 $200 billion
2001-02 $600 billion
2002-03 $760 billion
2003-04 $1000 billion
2004-05 close to $1500 billion
2006-10 over $ 3000 billion
14>Indian Economy
Robust hyper growth of manufacturing, agriculture and services
Low external debt, low deficit, high trade surplus
299 Fortune 500 companies outsource IT work to India
Increased disposable income, increased wealth
Large emerging affluent middle class
15>Indian Aviation
Air deccan–1 st low cose domestic carrier
Most international carriers now target India for network growth and profitability
$5 bn capital infusion in govt owned carriers
Airport privatization
The Indian LCA supersonic fighter, with 30 years under development, is the best light weight fighter in the world, second to none.
16>India will be the second fastest growing travel and tourism market over 2005-2014 at 8.8%– WTTC
17> Size of indian tourism is 330 million as of 2004
18>Indians going abroad as of 2004
Singapore — 375,658
Saudi Arabia — 373,636
UAE — 336,046
Kuwait — 293,621
Thailand — 280,641
Bahrain — 268,383
USA — 257,271
China — 213,611
U.K — 205,065
Hongkong — 193,705
NewZealand — 16,862
19> India growth projections
1999 — 2.7%
2000 — 3.4%
2001 — 3.6%
2002 — 4.2%
2003 — 4.5%
2004 — 5.9%
2005 — 6.9%
2006 — 8.0%
2007 — 9.4%
2008 — 11%
2009 — 12.8%
2010 — 15%
2011-2050 — 16.8%
20> Drivers of outbound growth
Increased charter operations
Upper middle income group will remain largest segment
potential consumer pie will grow to 300 billion
Age group of 15 to 49 likely comprise 62%
Self-employed who account for over 40% will emerge as
high potential target market
Holiday finance will become popular
21> Over 500 million Indian’s will travel overseas by 2020 — WTO
22> india discover water in moon, space superpower
23> 15 indian awarded Nobel prize.
24> Indian Prime Minister Nehru gifted the UN Security Council Seat to China, and now India is the leading candidate for the permanent member, winning endorsement from USA, Great Britain and Russia. –> Diplomacy Superpower
captainjohann
How many Indian babies live beyond 5 Years?
What is our rank in the poverty index?
What is our rank in the female gender protection index?
what is our rank in the transparency Index?
Of course our so called billionaires in Forbes list are mostly western educated as they are feudal siblings who could not get into Harward or yale without monetary donation and so may owe their western counterparts some of their loot stashed in swiss banks or Isle of man
mareo2
Well, that depend of in what conditions the “help” is given.
The “white knight” in shining armor idea, give without ask any aside of the promise of repay the money. This is what EU want, people don’t tell them how to expend the money.
The “IMF technocrat” in black suits idea, give only if the countries agree to start economic reforms making sure that they can get their money back. This is what people in third world countries like to see, the same standard, the same rules, for rich or poor.
I looked to just too many countries borrow money and waste it like if the money grow on threes and then they ask for more, their national debt grow to ridiculous levels, look at Japan’s Government debt, our only saving grace is that at the very least the money was borrowed from other japanese.
asoka
While US is missing in action, and China is unwilling or unable to help. The ongoing European debt crisis presents a golden opportunity for India to assert itself in the world stage.
We should commit ourselves to the course of rescuing Europe from its financial crisis. It is time for India take bold action by unilaterally declare its total and unconditional support for the European Financial Stability Facility. India has a huge foreign reserve, the biggest in the world. It is time to use it. The world will take notice of India’s great power. Taking such action is only befitting our superpower status.
We should set aside at least 1000 billions to this task. It is time to act. We can so do this. Let’s save Europe and the world. This is our coming out event, which will confirm India’s superpowerdom to the whole world.
skywalker
lol..
John Chan
@asoka,
In May 2011, IMF listed India’s foreign reserve is around 311 billion USD. That amount can neither meet Greek’s bailout need nor its own debt and trade deficit needs. The way India spending on foreign Rube Goldberg weapons, India soon would be the one that needs IMF’s bailout and austerity programs.
asoka your comment is not doing India any favour.
Liang1a
Asoka wrote:
India has a huge foreign reserve, the biggest in the world. It is time to use it. The world will take notice of India’s great power. Taking such action is only befitting our superpower status.
We should set aside at least 1000 billions to this task. It is time to act. We can so do this. Let’s save Europe and the world. This is our coming out event, which will confirm India’s superpowerdom to the whole world.
———————————-
http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves
Taiwan: $400 billion
India’s forex reserve: $311 billion
Hong Kong: $277 billion
Singapore: $242 billion
From the above list, India has only $311 billion of forex reserve. Yet this guy Asoka wants to use $1,000 billion to rescue Europe. India does not even have more than Taiwan being $100 billion poorer. And compared to Hong Kong, India is only $34 billion richer while having some 200 times more population. I don’t think Hong Kong is in any position to “rescure” Europe. And India with only $34 billion more is just as unable to “rescure” Europe. I have never seen anybody so ignorant as Asoka.
It is ignorance like this that is filling the Indians with impossible dreams of challenging China. Ultimately, India will only destroy itself.
Liang1a
Asoka wrote:
India has a huge foreign reserve, the biggest in the world. It is time to use it. The world will take notice of India’s great power. Taking such action is only befitting our superpower status.
We should set aside at least 1000 billions to this task. It is time to act. We can so do this. Let’s save Europe and the world. This is our coming out event, which will confirm India’s superpowerdom to the whole world.
——————————————–
Maybe Asoka wants to set aside 1,000 billions of Indian rupee which is worth about $20 billion. In which case I guess India can afford it. Though I’d think India would benefit more by building $20 billion worth of schools or hospitals.
Liang1a
China must not do anything out of the ordinary to help any developed countries to improve their economies. Why should China sacrifice itself to help peoples with short memories who have never apologized for their aggressions against China? China is much poorer than these developed countries. If China has any money to throw away then it is obligated to develop China first. It is treasonous to throw money away while the Chinese people are still among the poorest in the world.
China must also reduce its foreign trade where it exports some $1.5 trillion of products that its own people cannot afford and it gets back only useless foreign exchanges that China does not need and which is constantly losing their value. China is now squandering its hard earned forex to import such luxury goods as Swiss watches, French cognac, German cars, Japanese milk powder, American chop sticks, etc. China is now the second biggest consumer of luxury goods after Japan. This is shameful with the vast majority of the Chinese people still earning less than the poverty level incomes. China’s hard earned dollars are also used to provide loans to American consumers and American investors to buy more Chinese assets and to allow Chinese rich people to emigrate. China should reduce its exports and use the resources to increase the number and quality of its universities, affordable housings, modern hospitals, potable water, advance arms, etc. The developed countries can look after themselves. If they cannot then it’s their own problems. In all things, China must come first.
John Chan
@Liang1a,
All your arguments are acceptable except reducing the foreign trade. China should redirect its foreign trade to higher value added goods and discourage low value added goods. The competition from foreign trade will increase China’s competitiveness if China is competent and face the competition with the right attitude.
If China is unable to compete in high value added goods, that reflects China is weak in R&D as well as marketing and financing areas, such reflections are very valuable for China to plan and deploy their energy overcoming its shortcomings effectively.
China definitely does not want close door policy, such short sighted and cowardice mentality had set China into backward, ignorant and weak nation since the end of Zheng He’s expeditions and became a semi-colony during the era of unequal treaties.
Liang1a
John Chan wrote:
November 22, 2011 at 10:05 am
@Liang1a,
All your arguments are acceptable except reducing the foreign trade. China should redirect its foreign trade to higher value added goods and discourage low value added goods. The competition from foreign trade will increase China’s competitiveness if China is competent and face the competition with the right attitude.
If China is unable to compete in high value added goods, that reflects China is weak in R&D as well as marketing and financing areas, such reflections are very valuable for China to plan and deploy their energy overcoming its shortcomings effectively.
China definitely does not want close door policy, such short sighted and cowardice mentality had set China into backward, ignorant and weak nation since the end of Zheng He’s expeditions and became a semi-colony during the era of unequal treaties.
——————————————————-
Actually, competition from China’s foreign trade will make little or no difference to China’s overall economic development and will ultimately weaken China. Why? First what is the point of foreign trade? The normal answer is to earn forex reserves. So what is the point of forex reserves? The answer is to allow a country to buy foreign products. So what kind of foreign products does China need to buy? As China can produce all its own high tech products there is no longer any need to import any high tech products. China can produce its own nuclear power plants. China can produce its own 5th generation and even more modern fighters as well as other advanced weapons systems. China’s homegrown computer chips now allow China to make its second fastest super-computer where the fastest Chinese supercomputer is also the fastest in the world and made from American chips. Therefore, the thing for China to do is to make itself the best in the world. Obviously when China is the best in the world it can not copy other countries. Therefore, it is ultimately unnecessary for China to compete against other countries because there will be nobody for it to compete against. In other words, China must ultimately be its own competitor. Which means looking to foreign competition simply does not apply.
And so if China continued to just accumulate more dollars and yen and euros then they would just pile up with nothing for China to buy. So the trillions of dollars equivalent of forex reserves are deposited to foreign banks or foreign treasuries and steadily lose their purchasing power as inflation runs rampant around developed countries and water down China’s forex reserves’ purchasing power. In fact, China now promises to balance its foreign trade which means that China will now squander all its forex reserve to import luxury goods only a few rich compradors can afford. In view of the vast majority of the poor people of China this is adding insult to injury. While the Chinese farmers cannot afford medicines to save the lives of their loved ones the rich compradors must squander their money to balance foreign trade surplus. In the end, there is simply no point for China to do any foreign trade. The only thing foreign trade can do is make some Chinese compradors undeservedly rich while squandering China’s energy and resources. And China by keeping its exchange rate low makes the Chinese compradors rich while making the vast majority of the Chinese consumer pay with highly inflated consumer goods they cannot afford. In the end the Chinese workers cannot afford the products they produce because they are impoverished by the cheap yuan that goes to enrich the Chinese compradors.
China does not do any trade with its space technologies. Yet China’s space technologies are catching up fast with foreign space technologies. China’s car market are dominated 80% by foreign car companies but China cannot build a competitive car. This would prove that trade and FDI cannot make China competitive. Only market share and R&D can make China’s companies competitive. This is why China must reduce foreign trade while banning FDI and increase education and R&D and encourage SMEs.
If the Chinese people are to enjoy a standard of living as high as that of the Americans then they must produce an equivalent of $50,000 of per capita GDP. At 1.5 billion population by 2040 China’s total GDP would be some $75 trillion. But I think Chinese workers can be much more productive than the average American workers because more than 1/3 of American workers are minorities and much less productive than average. Therefore, China can ultimately achieve a total GDP (or GNP by eliminating FDI) of some $100 trillion (2011 purchasing power). Obviously China cannot export more than a couple of trillion dollars of products because there are not that many foreign consumers who can afford to import more than a couple of trillions of dollars worth of products from China. This means that if China is to achieve a GNP of $100 trillion then 98% of its economic activities must be internally generated because China simply cannot generate that much foreign trade. Therefore, whether China likes it or not, it must rely on itself. The good news is China can easily rely on itself without any problems because Chinese people are smart and industrious. They have proven themselves in Taiwan, Hong Kong, Singapore, and other countries in the world even in the US. Therefore, they can easily achieve a $100 trillion economy in mainland China without any problem given the right and enlightened policies from the Chinese government.
Lastly, China reducing trade does not mean China will be “isolated.” What does isolation has to do with trade anyway? Isolated means no relationship with any other countries. China can certainly maintain close diplomatic relationships with other foreign countries. China can also permit free tourism and travel. China can also permit trade to the extent of allowing China to gain the essential resources that China lack. But China is so rich in resources that it does not need to import much of anything. Maybe timber from Russia or platinum from S. Africa. But otherwise China can be totally self-sufficient.
Therefore, do not be brainwashed into thinking that China needs to be “connected” to foreign countries in order to be safe and secure. China will only be stunted in its growth by relying on foreign trade. And relying on the “goodwill” of foreigners like the Japanese, Americans, and Europeans will ultimately endanger China by allowing these hostile foreigners to dominate and colonize China like they did in the last 200 years. The Chinese people must not forget the humiliation and the devastation China had suffered. It may sound counterintuitive but China is so unique that ultimately it can achieve its full potential of wealth and power by being self-sufficient and increased foreign trade will only weaken it and endanger it. People should not take the simplistic view that since S. Korea needs foreign trade therefore China must have foreign trade. For China to copy S. Korea is like a 300 lb. man to wear a diaper. It is incongruous at the least.
John Chan
@Liang1a,
Labelling others with different opinions than yours is a common practice used by the anti-China clique to smear bloggers defending China. It is their Semmelweis reflex.
Your confidence and assessment of current China’s capabilities in science and technology is not realistic and overblown. Blaming some of China’s internal incompetence and social issues on foreign trade is nothing but ad hominem fallacy. Without vigorous foreign trade, there will be no science, technology and idea interactions and exchanges with rest of world, those China’s achievements that your are proud of will be hard to come by, because in a closed door China, there will be simply no incentive, drive and push to force China to compete and invent.
Just looking at foreign trade as a mean to accumulate foreign reserve is misguided and wrong. Actually accumulating foreign reserve is the least important aspect of foreign trade; the main function of foreign trade is to form conduits for interactions between people internationally. In the world, trade and relationship go hand to hand. An Isolated nation is a venerable nation that is susceptible to be attacked and destroyed. That’s what the Westpac did to Libya, Iraq, etc., isolate them first before bombing and killing those nations into total chaos.
China must adopt all ideas as long as they are good for China regardless their origins. Believing that shutting door will make all the problems you mentioned in China go away is naïve and simplistic.
a_canadian_observer
@Liang1a: 100% agreed! :)
bishop
i think the main problem isn’t where to find the money, if we should get it from us or china or japan or whereever. it is more a problem of not having a plan, rather than not having money.
one good way for the policy makers involved in this to proceed would be “if you could have all the resources you need, what plan would you devise that would address the short term sovereign / banking liquidity crisis, as well as restore growth in the long term”. once we have such a plan, and we can put a number on the resources needed as well as the expected benefits, THEN we can start going around the world to us, china, japan, blah looking for those resources.
i mean, even if you were to give europe the money now, i’m not sure they would know what to do with it really. they would certainly use it to buy time. but what then.
Yang zi
If you recall 1997/8 Asia financial crisis, no body came to rescue, except IMF with harsh conditions. It should be the same this time for Europe, besides, Europe has plenty of resources to save themselves.