Coincidence? As China Visits U.S., It Offers Aid to Europe

At about the same time China’s Vice President Xi Jinping, likely the country’s next president, shook hands with President Obama in Washington, People’s Bank of China chief Zhou Xiaochuan told European leaders the People’s Republic likely will give financial support to eurozone bailout projects like the European Financial Stability Facility. The U.S. will make no such investments. China has sent a signal that it can do what America cannot — financially support troubled regions of the world the way that America did for years.

Xi Jinping probably will say nothing about his country’s plans in Europe. He does not have to. The Chinese leader will visit a farm in Iowa while his financial leaders continue talks with financial ministers in Europe, perhaps to set terms for investments in the region. And China will be in the midst of setting trade measures with the U.S., measures that America wants to level the import and export balance between the world’s two largest economies. The People’s Republic will flex its muscles on two continents at the same time.

China’s foreign exchange reserves are worth about $3.2 trillion. It would not be difficult for the country to put $100 billion into the European Financial Stability Facility or other similar bailout pools. China can count on a solid return on the money, unless much of the value of the sovereign debt of Europe’s most troubled nations collapses. China’s investment makes that less likely. Outside support of Europe likely will prompt global capital markets investors warm to the region’s bonds. China’s investment in Europe will make those investments more valuable over time. The stock markets demonstrate that belief. Most global markets rallied on the Chinese news, as did most European debt instruments.

Illustrations of the U.S.’s lack of support of Europe’s financial problems has come in two forms. The first is that many members of Congress have said they do not want to send any more money to the International Monetary Fund, particularly if the money is to help weak eurozone countries. America, they say, has problems with its deficit and that takes aid to Europe off the table. A balanced American budget should come before aid to long-standing allies. The second is that Treasury Secretary Geithner has made several trips to Europe to lecture leaders on the need for fiscal responsibility. He has not brought any money with him. Leaders in the region have ridiculed him because the U.S. has its own debt problems. Geithner, they say, ought to clean up his own house.

This week, China will teach the world a lesson. It can become a bank for Europe. It cannot match Germany on that score, but the People’s Republic can offer critical aid. However, the U.S. will not offer similar help. Instead, America will bargain for its own deal with China to keep the large Asian nation’s export machine and currency policy from further damaging the U.S. economy.

Douglas A. McIntyre