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Why China needs a strong EU

By Fraser Cameron (China Daily)
Updated: 2011-06-24 07:52

Normally, the visit of Premier Wen Jiabao to Europe would catch the headlines. But as Wen Jiabao starts his visit to Hungary, the United Kingdom and Germany on Friday, all eyes will be focused on Europe's seemingly never-ending euro crisis. European leaders are holding a meeting in Brussels on Thursday and Friday, and the debt crisis is the top item on the agenda.

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The immediate crisis facing Greece has been averted, though, with European finance ministers agreeing to a new bailout package this week.

At a media briefing before the premier's visit, Vice-Foreign Minister Fu Ying said that China had tried to help the European Union (EU) overcome its troubles by buying more European debt and encouraging bilateral trade, and that the future of the European economy was "vitally important" for China. China had not reduced its considerable reserve holdings of euros, she said. On the contrary, it has continued to buy the bonds of countries at the center of the crisis such as Greece, Portugal and Spain.

Analysts say Chinese support has been important in stemming the depreciation of the euro. Today, it is just 5 percent below its peak against the US dollar, although many European companies would prefer to have a lower exchange rate. Support for the euro will help China in its twin track policy of increasing the international role of the yuan and allowing a gradual appreciation of its currency.

Wen Jiabao is likely to reiterate China's support for the EU during his three-country tour. The EU is China's biggest export market, and China's future growth prospects are dependent on continuing to have access to the largest single market in the world. Trade between the EU and China reached $566 billion last year, almost 10 percent of the total global trade flow.

Europe accounts for just over 20 percent of global GDP and about one-fifth of the global trade. Europe's leading economic position is also demonstrated by the fact that more than 170 of the World's 500 largest corporations are based in the EU. In addition, the average per capita GDP in the EU is about $32,500 compared to about $4,500 in China.

In the past few months the EU has taken unprecedented steps to put in place new mechanisms to deal with the financial crisis. A massive $850-billion stabilization fund has been established and governments have agreed to allow the EU to monitor their economic and financial policies. These measures should help promote financial stability. At the same time, the EU will have to make further economic and social adjustments to meet the challenge from new emerging powers such as China.