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Daily Israel Report

Can China Buy Protection for Its Protectionism?

Accused of protectionism by the EU, China may attempt to mollify Brussels by investing in European bonds.
By Amiel Ungar
First Publish: 4/22/2011, 6:57 AM / Last Update: 4/22/2011, 8:08 AM

 

Every time forces in the European Union make noises about Chinese protectionism, the Chinese, while refusing to concede that they are employing unfair trade practices, broach the issue of buying more European debt.  The  European Union Chamber of Commerce in China in a study released Wednesday assessing the results of 50 European companies, accused the Chinese government of shutting out European countries and blatantly favoring domestic ones by opaque bidding processes and favoritism. This reality contrasted with Chinese promises of transparency and equal treatment.

Chinese EU ambassador Song Zhe  floated the idea of greater Chinese support for European bonds. "It's possible we will purchase more sovereign bonds… We are hoping to achieve stability in European financial markets."

There is no doubt that such Chinese purchases would be hugely welcome. The European sovereign debt crisis is refusing to go away as Portugal has now asked for a bailout. It is also obvious that countries that had been treated with a bailout, Greece and Ireland, are not going to be able to cope with the terms imposed. Failing the appearance of a financial archangel they will either default or restructure (meaning that some creditors will face a loss). The Chinese government does not have to cope with disgruntled Finnish, German or British voters angered over having to bail out other countries.

Ambassador Song issued a denial that the issues of Chinese protectionism and bond purchases were linked, saying that China had secured its economic primacy on merits as it had outcompeted Europe. If it bought bonds this would be a strictly economic investment.

Spanish Prime Minister Jose Luis Rodriguez Zapatero visited China and Singapore last week to convince his hosts that Spanish debt was a good investment.

The Chinese appear conflicted over whether to continue denying that they are employing unfair practices to employing the argument that everybody plays the game the same way.

The Global Times, the English version of the People's Daily has adopted the latter approach accusing the Americans and Europeans of protectionism and making Chinese liberalization contingent on commensurate steps by the West.  The paper quoted Chinese commerce minister Chen Deming "Before China further opens up some sectors, we hope to get in return equal opening-up within the WTO, and some developed countries in particular can open corresponding sectors.".

Xiao Lian, a researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences that is closely affiliated with the Communist parties, claimed that foreign companies were peeved over losing the early favoritism that they enjoyed in the post Mao era. This, however, was not favoritism but part of Deng Xiaoping's policy of luring foreign companies to special economic zones and promoting technology transfers to China.