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Europe is getting the same public message from Beijing on yuan revaluation as the U.S.: “Back off and let us deal with it in our own time.”
Prime Minister Wen Jiabao told E.U. officials in Brussels (left) that a big shift in the value of the Chinese currency could create “social and economic turbulence” in China (exporters going bust, migrant workers returning home, Party’s legitimacy undermined…OK, so he didn’t actually say the last bit). But Wen did say that such dislocation would be bad for the world. China was still intending to make its exchange rate regime more flexible, but would do so to its own timetable, Wen said. (Full text of speech)
That is the oft-repeated line that is overtaxing the patience of China’s critics in the E.U., just as it is their counterparts in the U.S. who accuse China of keeping the value of the currency low to help Chinese exporters. Yet, ahead of the annual meetings of the IMF and the World Bank, Wen has also expressed China’s support for the euro, which has gained more than 30% against the yuan since 2001 and 13% since June. And the stops on his European tour are instructive, Greece, Italy and Belgium among them, three of the eurozone’s most indebted countries, but whose paper, along with that of other euro danger cases, Ireland, Spain and Portugal, Wen says, China will readily buy when it starts being issued again.
China doesn’t want a euro crisis, or worse, a collapse of the currency regime for two reasons. First, it would devastate a key export market where recovery, where it has happened, is sluggish at best. Second, it would leave the dollar as the unchallenged world currency, giving Washington an unpalatable degree of control over the global financial system for Beijing’s taste. So it needs a euro robust enough to be an alternative to the dollar, and will do what it needs to prop it up. Nor will Beijing be sorry to be holding high-yielding Euro sovereign debt, providing the euro survives its current crisis unscathed. The question is, will it. China may have a political strategy for the euro, and the euro itself may be a political creation, but the currency still has an economic dimension, too.