How much does it cost to buy global clout?

China has the second largest economy in the world but its hasn’t yet been punching its weight when its comes to global economic influence. Thanks to the euro bailout deal agreed in Brussels this week that is all about to change. As Europe goes cap in hand to the forbidden city asking for the cash to finance their euro rescue fund we can clearly see global economic power sailing east.

Klaus Regling, chief executive of the European Financial Stability Fund, is in Beijing right now. As he is trying to sell a load of euro debt, he is playing down the historic significance of his visit, saying he meets regularly with Chinese central bankers and that this trip is no different. He said: “When they buy our bonds they buy the same bonds as everyone else buys. There is no special deal so it is normal conditions. But the Chinese state media is explicitly saying that Europe shouldn’t expect China to act as a “good samaritan” in this, his time of need. In others words, this time they will want something in return. The conditions are anything but normal. And they are changing forever.

In the 1990s, it was us helping to prop up Asian economies in crisis. Even just a few years ago we would have probably thought it would be America to whom we would turn for help, for we had foreseen this crisis. But Uncle Sam can’t help this time, so the Americans are left on the sidelines, watching Europe boosting up Chinese global power and they can’t do anything about it.

Of course, China has owned huge amount of European debt for many years now. But this time we are borrowing from them on their terms, not on ours, and that could make all the difference.

The French socialist presidential candidate, Frances Hollande, put it very plainly when he said he was “deeply troubled” by the idea of  Nicholas Sarkozy calling up President Hu to ask for a loan. “Can anyone imagine that if China comes to the rescue of the eurozone it will do so without anything else in return?” he said. “This is, in reality, a dependence which amounts to a confession of weakness”. Frankly, acknowledging what so many other European leaders refuse to admit.

So what might China ask for in return for this very large loan?
They want some guarantees about getting their money back for a start. Which is not unreasonable in the circumstances. But this could well go beyond financial assurances.

For many years they have wanted to be officially recognized as a market economy by the EU. If that were to happen it would transform their trading relationship with Europe and may well be the first thing they ask for. That would infuriate the Americans who have many ongoing trade rows with China.

There could also be far more political consequences. It suddenly becomes much harder to criticise the human rights record of the country that holds your huge overdraft. You can never be to too rude to the bank manager. It seems unlikely that the EU would agree to immediately end the ban on arms exports to China but who knows just how desperate the eurozone might get.

It is in China’s own economic interest to prop up the euro. They cannot afford to see it fail. The eurozone buys 25 per cent of all their exports. A quarter of the huge pile of foreign currency they own is in euros, so China would be one of the biggest losers if the currency were to become worthless. But now that Europe needs China more than China needs Europe, why not also leverage some of the political power that the European crisis has given them?

Not least because the Chinese leadership will need to sell this to the Chinese public. How can they explain that whilst so many of their own people are living in dire poverty they are handing out cash to Europeans whose overspending and under working caused these problems? By telling them that what they are really buying is a new place in global pecking order.

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