Chinese economists: EU debt crisis unlikely to cause 'double dip' recession

17:14, June 07, 2010      

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The European debt crisis is likely to spread gradually, according to a report released by the European Central Bank (ECB) on May 31.

Most economists believe that although the debt crisis is more serious than expected, the subsequent effect will continue to weaken. The debt crisis is unlikely to cause a double dip of the world economy for the second time if it is handled in a timely fashion.

The Chinese economy can still benefit from the crisis as long as the trend of gradual global economic recovery remains unchanged.

The ECB report said the evolution of the debt crisis has only four possible results. The first is the restoration of order and confidence in the European Union; the second is the bumpy and shaky development of the economy; the third is social turbulence, and the fourth is the refusal of the European Union to pay back debts, resulting in the collapse of the euro. It is generally believed that the second outcome is most likely to happen.

At the macro level, the E.U. debt crisis will negatively affect China's exports. The decline in the euro will lead to the appreciation of the RMB against the euro, which, combined with the shrinkage of the E.U. market, will hurt Chinese exports to the European Union.

Statistics show that the bilateral trade value between China and the European Union reached 364.1 billion U.S. dollars in 2009, including exports totaling 236.3 billion U.S. dollars from China to the European Union, which accounts for almost 20 percent of China's total exports.

Experts estimate that the growth rate in China's exports to the European Union will possibly be down by 6 to 7 percentage points. Even so, China's export value in 2010 is unlikely to be lower than that of the previous year and is expected to grow by around 15 percent from a year earlier.

From a macro point of view, it all depends on whether or not the European debt crisis will spread to the United States and even the entire world. At present, European financial markets are at a higher risk and the data shows that German banks have lent Greece, Spain, Portugal and Italy as much as 650 billion U.S. dollars. U.S. banks also borrowed 1.2 trillion U.S. dollars from Europe. According to statistics from the ECB, banks in the euro zone countries have nearly 123 billion euros of bad loans in 2010 and 105 billion euros in 2011. It can be said both the United States and Europe are near the volcanic vent.

For Chinese businesses, there are both positive and negative effects. Due to the devaluation of the euro, the shrinking of European asset values as well as intense market competition and difficult business operations, Chinese companies have more chances to carry out mergers and acquisitions of European companies. On the other hand, overseas Chinese enterprises will face new difficulties such as trouble financing projects under construction.

By People's Daily Online


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