China's Approach to US debt and the Eurozone crisis

The sovereign debt crisis and the economic predicament of the West elicit mixed feelings and attitudes in China. On the one hand, the spiralling debt and worsening market conditions of the US and the eurozone are affecting China’s export-driven economy signifi cantly; on the other, the crisis in the West provides Beijing with the opportunity to raise its profi le internationally and challenge the existing international economic and monetary order. China’s fi nancial resources are sought after, both to contribute to solving the eurozone’s debt problem and to continue sustaining the America’s structural defi cit. Beijing has protected its position as the largest investor in US treasuries by disinvesting away from dollar-denominated assets and increasing its holdings of the euro. Risk in the eurozone has been offset by reallocating Chinese purchases of bonds away from peripheral countries and into the core members, in particular Germany. Moreover, China has increased its investments in European industrial and infrastructure projects that guarantee safer returns. The debt crisis is changing global power relations: Chinese leaders are today, for the fi rst time in modern history, in the position to take advantage of the West’s economic woes while also lecturing American and European policy makers on their economic and fi scal policies.