A Chinese ‘Marshall Plan’ for Greece?
October 6, 2010
What unfolded on October 2 between China and Greece is compelling, marking China’s biggest pledge of support for in-debt euro-zone nations. On his week-long tour of Europe, Chinese Premier Wen Jiabao made his first stop in Athens, where he offered to buy Greek government bonds to help the struggling nation overcome its debt burden and, hopefully, find its way back to financial, economic, and social stability. China also proposed to set up a $5 billion Greek-Chinese shipping fund and to support other Chinese investments in Greece to boost trade. Such investments could double bilateral trade between China and Greece to $8 billion by 2015.
Although the content of China’s plan for Greece is very different in scope than the Marshall Plan in the late 1940s, the largest and most effective recovery plan in Europe’s history, one cannot help but see another historical première in the making. Like the Marshall Plan in its time, China’s offer to help Greece is not about altruistic solidarity, and is far from selfless philanthropy. Indeed, it may not even be based on long-term political or ideological reasons, either. However, it is definitely a clever and enlightened economic and financial strategy.
As Paul Krugman wrote in The New York Times in 2003, after World War II “America’s leaders understood that fostering prosperity, stability, and democracy was as important as building military might in the struggle against communism.” Similarly, the Chinese government understands that, in our global economy, a stable and more prosperous Greece and beyond – the European Union as a whole – is an important element against international recession and a protection against negative, long-term effects on China from the worldwide financial and economic crisis.
The first objective is financial, and more specifically, monetary. China is concerned with the recent depreciation of the euro that has been penalizing Chinese exports to Europe. By offering support to Greece, China is acknowledging that the country’s disastrous financial situation has had a major role in the euro zone crisis. Supporting European recovery is a smart approach to keep the yuan currency from appreciating more, and to counter the United States’ forceful request for a stronger yuan.
In doing so, China aims to stimulate international trade and to support its exports to western countries. On the investment and trade front, China offered to stimulate investment in key sectors of Greece’s economy, such as shipping, construction, and tourism. Supporting cross foreign direct investments and setting up a Greek-Chinese shipping development fund will help China’s trade balance and encourage Greek shipowners to buy Chinese-made vessels.
The Chinese-Greek plan makes perfect economic and financial sense. It is also a smart political and public relations move.
Greece is currently under a $150 billion bailout from the 16-member euro zone and the International Monetary Fund, and China’s involvement will surely be much less than that. Chinese support may even be first limited to short-term bonds, waiting for Greece to return to markets before it buys long-term bonds. Nevertheless, with a European public opinion that largely sees China as the cause of a lot of its troubles, starting with delocalization, job losses, and restless social and economic competition, Wen Jiabao is sending a strong political message in attempts to influence European and worldwide public opinion. It’s also becoming clear that by describing China and the EU as “passengers in the same boat,” Premier Wen is trying to change the paradigm, and position China as a financial and economic partner, not a competitor.
While it is now common knowledge that China is playing a key role in financing western countries’ economies, this financial and political move may show a new turn in recognizing China as a key world player. This Chinese “rescue plan” may not make it into the history books as a new “Marshall Plan,” but it certainly marks a turning point in the relationship between Europe and China.
Véronique Salze-Lozac’h is The Asia Foundation’s regional director for Economic programs in Cambodia. She can be reached at [email protected].
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