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July 1, 2010

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Home » Opinion » Chinese Views

Chinese investment helps Greece, Iceland and others stay afloat

By Liu Jie | July 1, 2010, Thursday | Print Edition

WHEN foreign investors fled Greece as Moody's downgraded its debt to junk status, China's investment package in this country seemed to be timely.

The deal, which involves maritime shipping, real estate, infrastructure projects, and exports of olive oil, demonstrates that China is confident Greece will work its way out of the shadows at a time when such trust could not be more valuable.

Greece is not the only country that gained China's timely support when it was stuck in the quagmire of the global financial crisis.

Early this month, China signed a currency swap agreement with Iceland, as 3.5 billion yuan (US$515 million) added liquidity to the debt-ridden northern European island nation.

Vice Premier Zhang Dejiang said during his visit to Greece in mid June that China supports the measures taken by the International Monetary Fund (IMF) and the Euro Zone to help Greece out of the debt crisis.

As an important member of the IMF, China shoulders corresponding responsibilities and plays its role.

Zhang noted China is also willing to expand its import of Greek products and hopes that Greece could facilitate and support Chinese enterprises that invest or have businesses there.

Cao Honghui, a research fellow of the Chinese Academy of Social Sciences, said China's support would help Greece bridge trade gaps and reduce public debt to ease its fiscal burden.

It may also boost the confidence in the Euro, which shed nearly 20 percent of its value against the US dollar over the past six months.

To win aid from the IMF and the Euro zone, Greece has agreed to increase taxes and cut government spending to trim its mounting debts. But that aroused the anger of the general public, as they feared the fiscal austerity would hurt their livelihood.

However, when Greece had arrived at a critical juncture, no country except China offered help. And China was certainly not the only country that has the capability of doing so.

Admittedly, China's cooperation with Greece is based on reciprocal benefits. Greece excels in maritime shipping while China is also a world leader in that field.

As Louka Katseli, Greek minister of Economy, Competitiveness and Shipping, put it during her visit to china last week, 60 percent of China's exports were shipped by Greek vessels, while more than 400 ships owned by Greek shipping companies were built in Shanghai over the past 15 years.

All investment bears risks, whether long-term or short-run, speculative or strategic. China's cooperation deal with Greece is no exception.

Instead of turning to external markets to make up for falling domestic demand during the crisis as many Western economies have done, China looked to its home soil for more potential to reduce its over-dependence on exports.

This is not only good for its economic rebalancing, but also provides a cushion for those countries that pin hopes on demands of the world's largest market.

Heiner Flassbeck, chief economist at the United Nations Conference on Trade and Development (UNCTAD), wrote in an article in the Financial Times Deutschland that there is a consensus that Germany's economic recovery is as much due to China's economic upturn as its own sensible economic policy.

Germany's exports to China rose 58 percent in the first quarter from a year ago. This is not a miracle, but the result of China's policy of stimulating import and domestic demand, Flassbeck wrote.

Trade between China and other Asian countries has rebounded to the pre-crisis level as China's exports to Asian nations increased by one third this year from one year ago, and imports rose by two thirds.

Additionally, China's trade deficit with Asian countries hit US$45.5 billion in the first four months, a record high.

Greece's exports to China climbed 40 percent in the first four months of the year.

(The author is a writer at Xinhua news agency.)

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