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Author: 
MOHAMED A. RAMADY
Publication Date: 
Mon, 2010-12-27 20:39

On the domestic front, the Chinese government has been
embarking on a program of upgrading local industries to ensure that they are
technologically and energy efficient, so as to avoid future trade restrictions
on Chinese exports based on environmental issues. The Chinese have also been
acquiring strategic assets abroad that add depth to their natural resource
base, as well as foreign companies that complement their own operations. However
it is the more recent Chinese moves on the world's financial markets that are
now being closely examined to see if these are one-off affairs, or indicate a
strategic shift in Chinese international financial policy. The Gulf Cooperation
Council (GCC), having also amassed significant liquid reserves over the past
few years due to high energy prices, have begun to note these unfolding
financial geo-political events.
The expansion of Chinese economic influence, especially
in minerals rich Africa has triggered some unease by the US about China's
growing influence, especially its so-called "no-strings" trading and
investment policy. In turn, China has now publicly defended its economic and
trade relations with African nations, pointing out that China is now Africa's
largest trading partner, strings or no strings attached, and that bilateral
trade grew more than 43 percent to nearly $115 billion in 2010. At the same
time, Chinese direct investment in Africa has jumped from a meager $0.5 billion
in 2003 to a healthy $9 billion in 2009. Undeterred by US concerns, the Chinese
have now publicly stated that they plan to expand their Africa relationship to
a larger and broader scope, providing an indication of what the Chinese might
be doing next with Europe and other parts of the world.
The Chinese involvement in the current euro crisis began
in June 2010, when the Chinese government decided to ride to the rescue of the
beleaguered European Union with its purchase of Greek bonds and scooped up
assets on the cheap while it was at it, such as Piraeus Port. That assistance
came with substantial support for the euro to help it recover from the sharp
fall to 1.20 levels against the dollar. Just as in Africa, China has now openly
stated that the euro zone would become a major market for China's foreign
exchange investments. It is not surprising that this has come as a sweet note
to countries feeling the financial heat in Europe and wondering from where the
next assistance package would come, given the already heavy burden on Germany
and some of the other EU countries to fund struggling euro zone countries.
For the time being, analysts believe that the Chinese-EU
financial relations will go beyond the immediate issue of purchasing EU
sovereign bonds as symbolic or more serious indications of support for the EU. Meaningful
Chinese support will become increasingly focused on the more palatable EU wide
mechanisms, with bilateral support focused on European - Chinese trade and
foreign direct investment issues to avoid possible European obstacles or
objections to Chinese direct investment. Beyond financial stability
considerations, as the Chinese are duly aware like the GCC countries that they
need to build up a viable alternative to the US dollar in the long term, better
relations with Europe has been a major strategic objective of the Chinese
government to offset what is now turning out to be a more competitive and
sometimes sour relationship with the US.
The increase tempo of high level diplomatic musical
chairs visits carried out by both the US (South Korea, India, Indonesia and
Japan) along with military exercises by the US are considered by the Chinese as
strategic encirclement messages directed at growing Chinese power. And so the
Chinese have been holding their own musical chair visits to India, Pakistan and
Russia, and it is no surprise that increased economic cooperation and ties with
a financially distressed Europe are part and parcel of this geopolitical
rivalry. It would seem that China is now conducting a scaled down version of
the post-World War II US Marshall Plan for Europe, with China already quietly
benefiting from  this growing
Sino-European relationship as evidenced during the last G20 meeting in Korea,
when the Germans watered down criticism of Chinese foreign exchange policy, and
instead were more forceful against American quantitative easing and weaker
dollar policy.
And so back to the future for the GCC and how they can be
part of evolving geopolitical economic alliances. Like the Chinese, they can
affect a two pronged policy for their surpluses - supporting the euro zone by
purchasing euro bonds through the European Financial Stability Facility (EFSF),
while at the same time establishing deeper trade and FDI bilateral flows. The alternative
is doing nothing, and become marginal players buffeted by financial crisis
whose outcomes are beyond GCC influence ...
 
(Mohamed A. Ramady is a former banker and currently visiting
associate professor, finance and economics at King Fahd University of Petroleum
and Minerals, Dhahran.)

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