It’s nice to see the Chinese government making constructive noises about helping the Eurozone and Italy in particular, if only because I speculated about Beijing coming to the rescue earlier this year in class. I also put the idea to a Communist Party think tank in Beijing in February. Their initial response was that it wasn’t appropriate for a poor country like China to help rich countries like those in Europe. I pointed out that the country’s reserves are currently mainly invested in the even richer country of the USA which made them smile. And China is not so poor anyway, more of a middle-income country, with Gross National Income per head in 2010 of $4,260, about the same as Jordan, Jamaica, Peru and Thailand and way ahead of Pakistan, Nigeria and the Gambia, which are in the sub $500 range. The US is $47,140 by the way. (Data are from the World Bank, using their Atlas method of exchange rate smoothing).
Anyway, I think it’s too late now. When the Eurozone mess was still capable of being fixed, a major promise of investment in peripheral country sovereign debt could have brought calm for at least a few years, allowing China to be the hero of the hour without actually having to invest much money. Now they’d be crazy to buy Italian, let alone Greek debt, unless they used their entire reserves of $3.2 trillion, as it wouldn’t be enough to bring confidence to markets and would look more opportunistic than statesmanlike. The Euro is doomed in its current form and China’s hopes of an alternative to dollar will have to wait a while longer.