With the seven new members of the Politburo Standing Committee (PBSC) now in place, China will need to address an array of challenges including controversial aspects of political reform. The way this ‘China 7.0’ handles these issues will undoubtedly have profound implications for the whole world.
The results of the Greek elections on Sunday 17 June 2012 have been welcomed with a sigh of relief not only across Europe and America, but also in China. The sovereign debt crisis and the economic predicament of the West elicit mixed feelings and attitudes in China, highlighted in the speech by Hu Jintao, the Chinese President, during the first day of the G20 in Mexico. On the one hand, the spiralling debt and worsening market conditions of the US and the eurozone are affecting China’s export-driven economy significantly; on the other, the crisis in the West provides Beijing with the opportunity to raise its profile internationally and challenge the existing international economic and monetary order. Chinese leaders are today, for the first time in modern history, in the position to take advantage of the West’s economic woes while also lecturing American and European policy makers on their economic and fiscal policies.
China’s financial resources are sought after, both to contribute to solving the eurozone’s debt problem and to continue sustaining America’s structural deficit. Beijing has protected its position as the largest investor in US treasuries by disinvesting away from dollar-denominated assets and increasing its holdings of the euro. Risk in the eurozone has been offset by reallocating Chinese purchases of bonds away from peripheral countries and into the core members, in particular Germany. Moreover, China has increased investments in European industrial and infrastructure projects that guarantee safer returns. Overall, China seems to put more trust in Europe’s economy – in particular Germany and its surrounding area – than in the US. These dynamics should invite EU policy makers to consider closer Sino-European ties in economic, monetary and political affairs, including further discussion of China’s role in solving the current debt crisis and the use of part of China’s huge foreign reserves to shield the eurozone from international speculation coming mainly from Wall Street. China’s responses to the debt crisis hitting the West and the decision by Beijing to disinvest away from dollar-denominated assets and into the euro indicate that the time may have come for the EU to consider a political and economic grand bargain with China for the next 5-10 years.