A commentary appearing in the overseas edition of the People‘s Daily, the chief newspaper of the Chinese Communist Party, said that the euro zone debt issue was spreading like the Black Death and would harm China itself. However, because Beijing’s euro holdings are limited, the damage would be as well.
Reuters reported that the commentary identified a lower demand for exports as the chief means by which China would feel the effects of the debt crisis. The country’s relatively small quantities of assets in euros would limit the damage in foreign exchange reserves.
While the commentary does not necessarily reveal the opinion of China’s top leaders, it does expose the concern over the debt crisis and its potential impact on the country. China is already struggling to contain inflation. Conjuring up images of towns and villages laid waste by the fourteenth-century plague, the commentary compared the spread of the debt crisis to the contagion of the deadly disease.
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, said in the document, “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.”
Although they said the U.S. debt downgrade would have a more far-reaching effect on China’s foreign exchange reserves thanks to the country’s vast dollar holdings, they added, “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.”
Nicolas Sarkozy, president of France, is scheduled to meet Chinese President Hu Jintao in a few days, with the topic of their talks most likely the current market upsets over debt woes. Wang He, a researcher with a Chinese government think tank, was quoted saying, “Neither leader will miss the opportunity to voice their joint commitment to stabilizing global markets, and that should help to restore investment confidence to some extent.”
The commentary was more critical, urging the euro zone to “… reform the institutional constraints to economic development, and show a responsible attitude regarding the links between their countries’ and their region’s economic development and global economic and financial stability.”