China Paper Warns of Impact From Euro Crisis “Black Death”!
- The Chinese are caught in a web of their own making. They simply have too much foreign exchange reserves! Something like US$3T, with about US$1.5T denominated in USD. When a global currency crisis strike, they are the most exposed to losses.
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China paper warns of impact from euro crisis “Black Death”
By Chris Buckley and Zhou Xin, Reuters
BEIJING (Reuters) – The “Black Death” of debt crisis across the euro zone will hurt China by sapping demand for exports, although Beijing’s relatively small holdings of euro assets will limit any damage to foreign exchange reserves, the nation’s top official newspaper said on Monday.
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The bleak diagnosis for the euro’s prospects appeared in the overseas edition of the People’s Daily, the top newspaper of China’s ruling Communist Party, in a commentary by a former central bank official and an economist for the state-owned China Development Bank.
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The commentary in the People’s Daily does not reflect a definitive view from China’s top leaders, but it suggests the euro zone’s successive crises have stirred anxiety and debate in Beijing about the impact on China.
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“The euro debt crisis has now been going for nearly two years since the end of 2009, and the sovereign debt crisis has spread like the Black Death of the fourteenth century across the euro zone countries,” said the commentary, referring to the rodent-borne pandemic that devastated Europe.
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The commentary came days before French President Nicolas Sarkozy is due to meet Chinese President Hu Jintao in Beijing for impromptu talks that will probably focus on the recent turbulence in global financial markets.
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“The spread of the euro debt crisis will not have as large an impact on our country’s foreign exchange reserves as the U.S. sovereign debt downgrade, because euro assets make up far less of our country’s foreign exchange reserves than the dollar,” added the authors, Zhang Zhixiang, a former head of the People’s Bank of China international department, and Zhang Chao, an economist for the China Development Bank.
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“But the euro debt crisis will lead to a decline in real demand that will have a far-reaching impact on our country’s real economy,” they wrote. About a quarter of China’s record foreign currency reserves of more than $3 trillion are held in euro assets, analysts estimate.
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