China and the EU

The EU is looking to China to help with its financial mess.  Although this says all sorts of things about Europe’s view of itself as superpower, the more interesting issue is why China is prepared to do this.  Several theories abound.  First, China’s economic miracle has a lot to do with export-led growth, and the EU is one of China’s main markets.  If the EU implodes, this will have major consequences for China.  Second, as part of it export-led growth policy, China holds huge reserves of foreign currencies and financial assets in order to keep the yuan undervalued.  It therefore has reserves to invest, and European bonds may provide a good return if underpinned by German guarantees.  Third, and possibly most worrying for global stability, is that China sees itself as a world superpower and wants to extend its soft power and influence by helping the EU.

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