China risks public backlash over EU bailout

It may not be a democracy but rulers cannot ignore their people.

SHANGHAI: Europe has set its sights on Beijing as it tries to haul itself out of a debt crisis, but many Chinese people are asking why they should bail out wealthier nations that have lived beyond their means.

With $3.2 trillion in foreign exchange reserves and an economy that depends heavily on exports to the European Union and the United States, China has both the means and the motive to help Europe in its hour of need.

But as China’s own economic growth begins to slow and inflation remains persistently high with surging prices for food and housing, there are fears that a major investment in Europe’s bailout fund could trigger domestic backlash.

Opposition to such a move is already being expressed online in state media and China’s hugely popular weibos - microblogging sites similar to Twitter that now have more than 200 million users.

“Europe is much richer than China. How can they be short of money? This is clearly a fraud,” says weibo user Song Hongbing.

Michael Pettis, a professor of finance at Peking University, said the opposition gave China’s leaders cause for concern. “It’s going to be perceived as China bailing out a bunch of rich foreigners, and politically that’s never a popular move,” said Pettis.

Klaus Regling, the head of the European bailout fund, was reportedly aiming to coax another $100 billion out of China, already a major holder of EFSF bonds, but so far Beijing has been non-committal about further investment.

The state-controlled Global Times newspaper, known for its stridently nationalist stance, said Beijing should require concessions in return for cash, such as further market opening for Chinese products and investment.

Rescuing developed European countries is a hard sell for the Communist leaders of a country that is still trying to lift tens of millions of people out of grinding poverty.

The world’s second-largest economy may not be a democracy, but its leaders cannot ignore its people - especially now that the Internet has given them a forum to express their anger.

“When will you rescue your own people?” posted one of China’s more than 500 million Internet users.

Europe wants outside help to quadruple the EFSF to $1.4 trillion. But Andy Xie, former chief economist for Morgan Stanley, said he expects any Chinese contribution to be “token”.

Published in The Express Tribune, October 31^st,  2011.