Friday, June 20, 2014

Are the Chinese Smarter than the Europeans?

China, as far as I know, has not had to participate in any of the rescue loans to Greece. Those rescue loans, funded by European tax payers, paid off Greece's debt due to foreign lenders; i. e. Chinese banks got their Greek bonds/loans paid by European tax payers. That's smart.

The Chinese Central Bank is not part of the ECBs Target2 settlement system. Target2 financed, among others, Greece's current account deficit of which China, together with Germany, was the largest beneficiary. Put differently, China's current account surplus with Greece was financed by the ECB. That's smart.

Finally, China, as this article from The Guardian reports, has been a very successful investor in the Greek economy since the crisis began with Cosco being the most prominent investment. Put differently, while European tax payers and the ECB have put money into Greece to pay off Greece's foreign creditors, including Chinese ones, the Chinese have put money into the Greek economy to earn a profit. That's very smart!

"No other country in Europe offers such potential," Captain Fu Cheng Qiu of Cosco sums up the magnitude of China's interest in Greece as cranes in constant motion move containers from ship to dock outside. "We believe that Piraeus can be the biggest port in the Mediterranean and one of the most important distribution centres because it is the gateway to the Balkans and southern Europe."

As the Chinese premier, Li Keqiang, arrives to conduct an official three-day visit to Greece, it will be the success of China's state-run shipping group at the forefront of talks. With Beijing hoping to further cement its foothold in a country viewed as offering the easiest entrance to Europe commercially, Chinese officials are eager to replicate Cosco's business model elsewhere. "The Chinese and Greek economies are mutually complementary," Li wrote on Wednesday in the daily Kathimerini. "Greece is accelerating privatisation and infrastructure construction. China will encourage its well-established enterprises to play an active part in this process."

The Chinese Premier will undoubtedly receive a warm reception in Greece for having supported Greece so much during the crisis. Chancellor Merkel and Finance Minister Schäuble, on the other hand, had to be given a lot of police protection when they visited Greece. The former can look forward to good future profits on the money they invested in Greece. The latter will sooner or later have to take losses on the money which they lent to Greece. Profits are smart; losses are not.

One wonders why Europeans cannot be as smart as the Chinese. At least smart enough to understand that one needs to make a weak borrower strong if one hopes to get loans back. Smart enough to understand that the greatest investment opportunties are often in economies which need re-building badly. Smart enough to understand that investing holds more profit potential than lending. Smart enough to understand that one gets more praise for investing and creating jobs than for lending and enforcing austerity.

"Our phones are ringing off the hook," says Li Ang, who heads the capital's Greek-Chinese Commercial and Cultural Association. "Investors want to buy five-star hotels, wineries and olive oil companies … people who left with economic crisis are flooding back. Greece is a great place to do business in and the prices are very good."

Well, it looks like by the time the Europeans will begin writing off their loans to Greece, the Chinese will start collecting dividends on their investments. Maybe it's time for the Europeans to get smart, too!


  1. "Smart enough to understand that one gets more praise for investing and creating jobs than for lending and enforcing austerity."

    Mr. Kastner, the European help version, has been very controversy even for Greeks that supported the "memorandum". To make a brief summary. Many greek and foreign economic analysts, have said that had the greek debt been restructured early on, the greek debt would be 80-90% now. Instead, you have the EU (Germany in poor words), saying that now that the debt is 177%, Greece must maintain 4.5% of GDP primary surplus for many years to come, so that in 2022 the debt must fall to 120%. A greek without job, now wonders : "wouldn't it be more helpful if instead, we could invest the % of primary surplus, to something that will make the economy recover, instead to a debt goal that someone else has dediced?". Today, the IMF said it won't allow again to give loan without early debt restructuring, but did that to protect the rest of eurozone. A meagre consolation to 1.200.000 unemployed. Then we have the "huge" success of the greek PSI. Unfortunately, half of the "gain", was cutting state debts to itself. Yesterday it was pubblished that cumulatelively the greek pension funds lost 33 bln due to the PSI. Greek banks lost other amounts, that Greece now borrowed to replenish and then some more was the cypriot banks. Turns out, the PSI was made at the "right time", so that the most of the hit, would be taken by greek structures.

    Then you have SYRIZA win the elections, first time in history and Golden Dawn trailing New Democracy.

    Mrs. Merkel when in Greece doesn't just need Police. The goverment prohibits any traffic in several Athens streets from where Mrs. Merkel will have to pass in car.

  2. The exemption was established at the start of the European debt crisis to prevent contagion by allowing some nations to receive financing even though the fund could not say with “high probability” that their debt was sustainable. In a report released today, IMF staff proposed that a country’s creditors instead be asked for a “a relatively short extension of maturities” in exchange for IMF support.

  3. There is the evaluation of Greek debt sustainability, Chinese won't contribute to that (lol).
    Also the "occupation loan" that our side want to negotiate, but Germans don't.


  4. It is as you say. It looks as if the Europeans can't bring themselves to make the weak borrower strong because they recognize that's gonna weaken their own current accounts.

    That's true, but you can't have both. Either you weaken your current account or you accept losses on your loans.

    Nevertheless, the Europeans were in a much worse condition to begin with and as a result had to take more difficult decisions than the Chinese.

  5. Going through your article and having read almost half of it, I wondered why you did not assume the obvious. Further down, you did. So, spot on..... an investor which alongside funds brings jobs, hope and prosperity is naturaly welcomed regardless color, nationality, political direction....On the contrary, an entity that brings misery, austerity and eliminates hope is undoubtedly hated by everyone. No surprises there!
    We can only hope that the latter may turn into the former; in good timing though!

  6. Are the Chinese smarter than the Europeans?
    They may well be in the long run, for sure they are a lot smarter than the Greeks. The crafty Greeks are considered to be master wheelers and dealers, but they can't hold a candle to the Chinese. I have during the last week's visit of the Chinese trade delegation watched and admired the virtuosi way the Chinese played the Greeks.
    They have praised the ancient Hellene culture and by extension modern Greece. They have compared the ancient Hellene culture with the Chinese and not found it wanting. They have expressed that Greece is (at least) as important to the world as China. They have proven their friendship and confidence in the Greek economy by signing investment deals for USD 4.6 BIO (3.5 being loans to Greek controlled shipping companies located in other countries, for ships build in China. The remaining being Letters Of Intent or confirmations of previous deals like the Hellenikon). They have hinted that Greece will soon regain it's well-deserved important role in world politics and economics. They have hinted that Greece will become the all-important middle man for all future large transactions between China and Europe. They have pledged that they will invest in Greek government bonds, a promise they have repeated once a year since they said it to G. Papandreou in 2010, an easy promise considering the anonymity of ownership.
    And did the suspicious Greeks swallow that? Hook, line and sinker, flattery will get you everywhere. Watch out Frau Merkel, we have powerful friends.