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Nicholas Consonery is an Asia analyst at Eurasia Group.
China will not be saving Europe. That scenario was floated as a possible, if not likely, outcome for the G-20 talks last week. But instead Beijing showed that it is, for now, still largely unwilling to shoulder responsibility for fixing the continent’s financial woes. What happened?
First, Beijing just couldn’t sell it at home. There is an unprecedented political transition underway in China, the economy is slowing, and pressures on the leadership to rectify internal socio-economic imbalances are growing rapidly. Given these tensions, the leadership feared that a sizable financial relief effort for Europe could easily have become a point of real social discontent or even instability—not to mention a major vulnerability for top officials.
Second, there was no deal to be made. China is a “revisionist” economic power—meaning that it wants to make changes to the international economic system. China wants to enhance its influence over global trade and economic issues; reduce the dominance of Western powers, institutions, and currencies; diminish trade barriers; and strengthen their monetary policy independence.
So China was looking for something in return, given the inevitable domestic pushback it knew it would face in providing meaningful financial assistance to Europe. Beijing never believed that it could press for quid-pro-quos to secure market economy status or silence criticism of its currency policies in Europe, however. Among its near-term priorities were more practical changes—revisions to the voting structure of the IMF, for example.
Any number of arrangements could have been made to sweeten an investment deal for China. But while the US and Europe are both willing to gradually make some changes to the international system to accommodate China's rise, such changes are just not possible right now.
Third, China does not trust that the European leadership can solve its own problems. This makes investments in the continent's sovereign debt look extremely risky—financially and politically. The financial point is obvious: If Europe doesn’t find a solution, China doesn’t get its money back. And politically, Beijing is simply unwilling to take on a leadership role in resolving Europe's debt woes.
So China is a revisionist economic power. But the G-20 made clear that it is a restrained revisionist. Domestically, Chinese citizens are supportive of a more influential China, but not when required steps are seen as coming at the expense of priorities at home. And internationally, China, as a major trading nation and energy consumer, is susceptible to global policy changes that would threaten their ability to trade or access the resources they need for growth. So the Chinese leadership is wary of aggravating fears of China’s rise, preferring not to risk open channels for trade and investment. In other words, the Chinese leadership recognizes their own restraints—which is why their external policies are still so risk averse.
Either way, Europe is unwilling to offer China anything in exchange for its assistance, and China wants to avoid being seen at home as giving too much for too little. Given that, high expectations about China’s aid to Europe should be restrained as well.