China Plays the Euro Card

Buried on page 3 of the business section of The New York Times on January 7 was an obscure article reporting that China had committed to purchase 6 billion euro ($7.8 billion) worth of Spanish bonds.  What went unnoticed by the writer was that the economic and political consequences of such an event could be quite far reaching.

China currently has $2.7 trillion in foreign currency reserves, over $900 billion of which takes the form of U.S. Treasury debt.  For years critics of U.S. monetary policy have argued that in response to low yields on U.S. Treasury notes and the risk of a precipitous decline in the value of the dollar, China might pull the plug on its U.S. Treasury investments.  Others claim that this will never happen because the Chinese economy is so dependent on exports to the United States, which could dry up if China were to trigger a collapse of the U.S. economy by its actions.

In the meantime, the White House continues to harass China on its human rights record as well as what the U.S. claims is the inflated value of the Chinese currency, the yuan.  When China refused to allow Nobel Peace Prize winner Liu Xiaobo to go to Oslo to receive the prize, China was subjected to intense criticism by Washington.

In a series of recent visits to European capitals China’s executive deputy prime minister Li Keqiang promised Chinese support for European Union economies.  By pledging to buy bonds worth billions of euros and committing billions more to European based business deals, could Beijing be signaling to Washington that “enough is enough”?  By investing in European economies, China strengthens one of its other most important export markets and makes itself less dependent on the United States.

It is interesting that Spanish bonds should be the first euro-denominated government investment made by China.  Spain is arguably the most independent country in the EU.  Its prime minister, Jose Luis Rodriguez Zapatero, is the only leader in Europe who has the guts to stand up to Washington, Tel Aviv, and the Vatican.  The Spanish socialist government is also the most left-leaning government in Europe today.

Spain has significant strategic holdings in Latin America and Africa, two parts of the world where China would like to expand its influence in its quest for oil and other natural resources.  Playing the Spanish card was a stroke of genius by Beijing.

I believe there are two reasons why Washington has not succumbed to Israeli pressure to take out Iran’s nuclear program.  First, Russia could severely damage the European economy, if it were to cut off the supply of natural gas to Europe in retaliation.  Second, China could precipitate the collapse of the U.S. economy, if it were to walk away from U.S. Treasury bonds.  By stepping in to help bail out the European Union, China demonstrates that the threat of pulling the plug on its investments in U.S. Treasury securities is a credible one.

The only thing surprising about China’s move on Europe is that it didn’t happen sooner.  But the message from Beijing to Washington is loud and clear, “Don’t mess with us, or Iran.”

THOMAS H. NAYLOR is a professor emeritus of economics at Duke University. He is the co-author of Downsizing the U.S.A. and The Abandoned Generation: Rethinking Higher Education and co-founder of the Middlebury Institute.


More articles by:
July 16, 2018
Sheldon Richman
Trump Turns to Gaza as Middle East Deal of the Century Collapses
Charles Pierson
Kirstjen Nielsen Just Wants to Protect You
Brett Wilkins
The Lydda Death March and the Israeli State of Denial
Patrick Cockburn
Trump Knows That the US Can Exercise More Power in a UK Weakened by Brexit
Robert Fisk
The Fisherman of Sarajevo Told Tales Past Wars and Wars to Come
Gary Leupp
When Did Russia Become an Adversary?
Uri Avnery
“Not Enough!”
Dave Lindorff
Undermining Trump-Putin Summit Means Promoting War
Manuel E. Yepe
World Trade War Has Begun
Binoy Kampmark
Trump Stomps Britain
Wim Laven
The Best Deals are the Deals that Develop Peace
Kary Love
Can We Learn from Heinrich Himmler’s Daughter? Should We?
Jeffrey St. Clair
Franklin Lamb, Requiescat in Pace
Weekend Edition
July 13, 2018
Friday - Sunday
Brian Cloughley
Lessons That Should Have Been Learned From NATO’s Destruction of Libya
Paul Street
Time to Stop Playing “Simon Says” with James Madison and Alexander Hamilton
Jeffrey St. Clair
Roaming Charges: In the Land of Formula and Honey
Aidan O'Brien
Ireland’s Intellectuals Bow to the Queen of Chaos 
Michael Collins
The Affirmative Action Silo
Andrew Levine
Tipping Points
Geoff Dutton
Fair and Balanced Opinion at the New York Times
Ajamu Baraka
Cultural and Ideological Struggle in the US: a Final Comment on Ocasio-Cortez
David Rosen
The New McCarthyism: Is the Electric Chair Next for the Left?
Ken Levy
The McConnell Rule: Nasty, Brutish, and Unconstitutional
George Wuerthner
The Awful Truth About the Hammonds
Robert Fisk
Will Those Killed by NATO 19 Years Ago in Serbia Ever Get Justice?
Robert Hunziker
Three Climatic Monsters with Asteroid Impact
Ramzy Baroud
Europe’s Iron Curtain: The Refugee Crisis is about to Worsen
Nick Pemberton
A Letter For Scarlett JoManDaughter
Marilyn Garson
Netanyahu’s War on Transcendence 
Patrick Cockburn
Is ISIS About to Lose Its Last Stronghold in Syria?
Joseph Grosso
The Invisible Class: Workers in America
Kim Ives
Haiti’s Popular Uprising Calls for President Jovenel Moïse’s Removal
John Carroll Md
Dispatch From Haiti: Trump and Breastfeeding
Alycee Lane
On Heat Waves and Climate Resistance
Ed Meek
Dershowitz the Sophist
Howard Lisnoff
Liberal Massachusetts and Recreational Marijuana
Ike Nahem
Trump, Trade Wars, and the Class Struggle
Olivia Alperstein
Kavanaugh and the Supremes: It’s About Much More Than Abortion
Manuel E. Yepe
Korea After the Handshake
Robert Kosuth
Militarized Nationalism: Pernicious and Pervasive
Binoy Kampmark
Soft Brexits and Hard Realities: The Tory Revolt
Helena Norberg-Hodge
Localization: a Strategic Alternative to Globalized Authoritarianism
Kevin Zeese - Nils McCune
Correcting The Record: What Is Really Happening In Nicaragua?
Chris Wright
The American Oligarchy: A Review
Kweli Nzito
Imperial Gangster Nations: Peddling “Democracy” and Other Goodies to the Untutored