Beijing - The “Black Death” of debt crisis across the eurozone will hurt China by sapping demand for exports, although Beijing’s relatively small holdings of euro assets will limit any damage to foreign exchange reserves, the nation’s top official newspaper said on Monday.
The bleak diagnosis for the euro’s prospects appeared in the overseas edition of the People’s Daily, the top newspaper of China’s ruling Communist Party, in a commentary by a former central bank official and an economist for the state-owned China Development Bank.
The commentary in the People’s Daily does not reflect a definitive view from China’s top leaders, but it suggests the eurozone’s successive crises have stirred anxiety and debate in Beijing about the impact on China.
“The euro debt crisis has now been going for nearly two years since the end of 2009, and the sovereign debt crisis has spread like the Black Death of the fourteenth century across the eurozone countries,” said the commentary, referring to the rodent-borne pandemic that devastated Europe.
The commentary came days before French President Nicolas Sarkozy is due to meet Chinese President Hu Jintao in Beijing for impromptu talks that will probably focus on the recent turbulence in global financial markets.
“The spread of the euro debt crisis will not have as large an impact on our country’s foreign exchange reserves as the US sovereign debt downgrade, because euro assets make up far less of our country’s foreign exchange reserves than the dollar,” said the authors, Zhang Zhixiang, a former head of the People’s Bank of China international department, and Zhang Chao, an economist for the China Development Bank.
“But the euro debt crisis will lead to a decline in real demand that will have a far-reaching impact on our country’s real economy,” they wrote.
About a quarter of China’s record foreign currency reserves of more than $3 trillion are held in euro assets, analysts estimate.
Restore confidenceIt was not clear, however, that the commentary signalled China would take a tougher stance in discussions during Sarkozy’s visit.
Wang He, a researcher with a Chinese government think tank, said Sarkozy and Hu have a shared interest in portraying Europe’s troubles as manageable.
“Neither leader will miss the opportunity to voice their joint commitment to stabilising global markets, and that should help to restore investment confidence to some extent,” said Wang, who studies European economics at the Chinese Academy of Social Sciences.
He also played down the likelihood of Europe’s crisis spinning out of control.
“I don’t expect Europe to solve its debt problem overnight, but we must see that Europe has the financial capability to prevent it from spreading like a disease,” he said.
“It is certainly overly pessimistic to say that the eurozone is falling apart.”
The 27-member EU bloc is China’s biggest trade partner, with bilateral trade in goods in 2010 reaching €395bn ($570bn), a 13.9% rise, according to EU statistics. Chinese exports to the EU reached €281.9bn in 2010, a rise of 18.9% on 2009.
Chinese leaders, including Prime Minister Wen Jiabao, have repeatedly expressed confidence that debt-laden European countries can overcome their problems and return to healthy growth.
During a visit to Germany in June, Wen said his country could buy the sovereign debt of some troubled eurozone nations if needed.
But the People’s Daily said the eurozone’s problems reflected deep-seated institutional failings that needed to be overcome for Europe to recover confidence and strong growth.
“The eurozone should reform the institutional constraints to economic development, and show a responsible attitude regarding the links between their countries’ and their region’s economic development and global economic and financial stability,” wrote the two economists.