|Following the ongoing European monetary crisis, European Union leaders visited Beijing this week seeking Chinese money to help bolster a planned fund of about 500bn euros ($665bn). The new fund would provide bailout financial guarantees to loans given by European national banks in the hope of kick-starting European economy. Yesterday, February 14, 2012, Premier Wen Jiabao offered co-operation to help stabilize debt-ridden EU nations, but made no specific promise to invest in the proposed European bailout fund.
The visit was urgent, since credit-rating agency Moody’s again downgraded Spain, Italy and Portugal. It also downgraded the credit outlook for France, the UK and Austria. Greece passed a new package of severe cuts late on Sunday, and that resulted in ongoing riots in Athens. The USA is in deep financial problems itself, and thus in no position to help the EU. Last year, the European Union was the largest trading partner of China, with a trade worth 560bn euros. Hence, China became the best chance for the EU to get financial help; especially since China enjoys a surplus economy as the map below shows. Without the new fund, the weakest European economies would fail to inspire enough credibility to be able to sell their bonds. That means, some of them could collapse.
The EU delegation failed to get the solid commitment they wanted from China. Probably the European leaders were the only ones surprised by that. After all, in the last 500 years Europe has behaved like an elephant in a china store. Spain is one of the dark stars in the ongoing crisis; thus, it is enlightening to remember key statements and events related to this economy. Choosing them carefully allows elucidating the current Chinese position, and offers a look into what we should expect in the near future.
During the first week of 2011, Li Keqiang, China’s Vice Premier visited Spain and was welcomed by then Spanish Prime Minister Jose Luis Rodriguez Zapatero. The visitor announced that his country would buy $7.9 billion in Spanish bonds, when China already owned 10% of Spain’s foreign debt. China bought debt also from other troubled countries of the EU. Chinese attention to these quasi-junk bonds is beyond the premium interest paid by them. El País newspaper dubbed Li Keqiang the new “Mr. Marshall,” in a reference to America’s post-World War II Marshall Plan.
My choosing a second-line European country may be misleading. Spain is important in the current crisis because it is not like Greece, Portugal, Ireland or Italy. Spain played by the EU rules, and yet it is collapsing. When it joined the euro in 1999, Spain broke the EU debt rule, with a debt/GDP ratio of 62.3%. However, the Spanish government run a balanced budget on average—that means its borrowing was zero—every year until the 2008 financial crisis. Yet, it is failing. If Spain fails, it may mean the euro is not viable, and that Germany and France may also collapse.
Country Foreign Exchange Reserves Minus External Debt | China Green; Europe and the USA Red
China buys not only national debt in Europe and the Americas (it practically owns Venezuela); China buys also commercial companies. Sometimes this is done through cross-holding deals, as it happens with the Spanish Telefónica.
The strength of monopolies is often ignored, mainly because they are strong enough to suppress criticism. Created in 1924, as Compañía Telefónica Nacional de España (CTNE), Telefónica was the monopolist telephone operator in Spain until 1997. After its privatization, it still holds around three quarters of the market. In the past, the company used its monopoly strength to penetrate the markets of Spain’s former colonies. Eventually, it also entered the US market, through Telefónica USA, which provides services to US based multinational companies that have operations in Latin America and Europe. Surprisingly, this is the third largest phone provider in the world.
In 2009, China Unicom signed a $1Bn cross-holding with Telefonica. In January 2011, the two partners agreed to a further $500M tie-up in each other, which following completion in late 2011, Telefonica will hold a 9.7% stake in China Unicom, while China Unicom will own 1.4% of the Spanish firm. In such a way, China is getting access—slowly but surely—to the international communications system. A new version of CAZAB is being created, this time in the open, and trading in international stock exchanges. Overall, China owns a significant part of the Spanish foreign debt and has at least a significant position in one major Spanish corporation. In shape, this resembles very much the actions of colonial companies set up by the Brits and Dutch, namely The English East India Company and The Dutch East India Company, which were described in Western Blueprint.
Are we witnessing an economic colonization of Europe by China? If so, why did China refuse—by ignoring—helping the new bailout fund? After all it would have substantially strengthened its hold in its would-be-colonies.
Certain issues are so indefensible, that elected governments prefer to delegate them to unelected institutions rather than confront voters in a fair process. Before leaving office—he decided not to run again for office—Spanish Prime Minister Zapatero took advantage of his position to sign a deal with the USA; I described it in detail in NATO’s Missile Defense Backfires. On October 5, 2011, Zapatero and US Defense Secretary Leon Panetta announced at Brussels’ NATO headquarters that Spain will provide a base for US ships in support of NATO’s missile defense system. Prime Minister Zapatero cheated the Spanish people by deciding to allow four additional American ships and another 1200 American soldiers to be stationed at Naval Station Rota, a naval base located halfway between Gibraltar and Portugal. Just imagine President Obama allowing Bolivian troops to be stationed in California on his own, without consulting the Congress or the Senate! That’s what Zapatero did.
He also overlooked another key player. He forgot to ask China—the owner of much of his country—if it agrees to the reinforced American presence in Europe, China’s largest trade partner. One year later, the Chinese quite ignored Europe’s plea for financial help. “Sign another deal with the USA Navy,” was China silent message. However, there are not enough American ships to help Europe out of the actual disaster.
China is not the West; it won’t engage in savage worldwide attacks in order to impose its position in world politics and economy. Instead, it is doing so by slow and legal actions. One day in the not so far future, Spain—and its colonialist neighbors—would be nothing more than Western China; small vassal nations returning to their innate place in history. Just look at the map.