Shadow Government

China's investing woes

For those who believe it is just a matter of time before China rides its commercial success to global hegemony, this week offered some compelling imagery: Europe, on its knees, reeling from political discord, rising bond yields, and bank downgrades; China, sitting atop its $3.2 trillion hoard of foreign exchange reserves, condescending to dictate the terms of European surrender.

Of course, Chinese Premier Wen Jiabao was not so tactless as to describe it as surrender. He actually expressed a "readiness to extend a helping hand and a readiness to increase (Chinese) investment in Europe." It wouldn't hurt, he went on, if Europe should decide to grant China market economy status, effectively lowering trade barriers.

Fareed Zakaria translates this into great power politics terms:

In a world awash in debt, power shifts to creditors. After World War I, European nations were battered by debts, and Germany was battered by reparation payments. The only country that could provide credit was the United States. For America, providing desperately needed cash to Europe was its entry into the councils of power, a process that ultimately brought a powerful new player inside the global tent. Today's crisis is China's opportunity to become a 'responsible stakeholder.'"

That's a twist on the original conception of what it meant to be a responsible stakeholder, but no matter. This interpretation falls apart as soon as one scratches at it a little.

The idea that a big infusion of Chinese cash would set Europe aright misinterprets the problems facing the Eurozone. Although the troubled countries there -- Greece, Ireland, Portugal, Spain, and Italy -- each took their own paths into difficulty, they are all in unsustainable fiscal situations. These require difficult choices about future taxes and spending, not just a quick bridge loan. Oddly enough, Zakaria recognizes this early in his piece, when discussing the implausibility of a "eurobond" solution, under which France and Germany would effectively co-sign loans taken out by their neighbors:

The minute such bonds are floated, Italy, Greece and the others would lose all incentive to make painful reforms; they could borrow all the money they need at German-subsidized rates, so why go through the dreary work of restructuring? The Germans know this -- hence their opposition."

Yet Zakaria plows ahead with the idea that a Chinese bailout would be qualitatively different than a German bailout. The Chinese are under no such illusions. Bloomberg quoted the Chinese premier:

Countries must first put their own houses in order," Wen said (Wednesday) at the World Economic Forum in the Chinese city of Dalian. "Developed countries must take responsible fiscal and monetary policies."

While there might be symbolic appeal to the idea of China riding to Europe's rescue, the reality would be less romantic: a relatively poor country would be sending its savings to a collection of wealthy ones. Moreover, to be useful, China would have to be willing to stockpile the Spanish and Italian bonds that are scaring everyone else. Jamil Anderlini of the Financial Times nicely documents Chinese reluctance to take on that role. 

In fact, it sounds as if the Chinese have already demurred. One adviser to China's central bank said explicitly the country should refrain from buying too many European bonds. While there are reports of Italians making sales pitches to lure Chinese investment, they do not seem to have gotten very far. Despite Wen's offer of a helping hand, the Financial Times story reports:

...analysts and European officials say China's actual purchases of Greek, Portuguese, Spanish and Italian bonds have been quite limited and its Euro-denominated foreign reserves are overwhelmingly invested in much safer German debt."

It is tempting to see China's foreign exchange reserves as a massive political war chest, but so far the Chinese have been unwilling to use the stash for anything more than token gestures. China seems to be acting more like a worried investor than an aspiring hegemon.

STR/AFP/Getty Images

Shadow Government

Transatlantic trends: Weather change or climate change?

An overriding question with public opinion surveys is discerning when they detect changes in the weather or changes in the climate (politically speaking). Weather changes are episodic, fickle, and driven by prevailing headlines, whereas climate changes are more systemic, structural, and enduring. The German Marshall Fund of the United States (where I am a non-resident fellow) has just released its indispensable Transatlantic Trends survey of European and American public opinion, and the results might well herald a climate change - or perhaps just an erratic weather pattern.

The survey's banner findings concern American public opinion's shift towards Asia over Europe, particularly among the younger generation of Americans. For the first time ever, more Americans (51 percent) believe that Asian countries, such as China, Japan, or South Korea, are more important to the United States' interests than are the countries of the EU (38 percent). Whereas a mirror image of 52 percent of EU residents believe that the US is still more important to their national interests than Asia (37 percent). This is not quite (yet) a complicated love triangle, but at the least could foreshadow some relational awkwardness if Europeans still gaze affectionately towards America, while Americans look flirtatiously in the other direction towards Asia.

This shift in American attitudes is significant, but just how significant will only be revealed in time. For Americans who follow the news, the headlines over the past several months from Europe have been of rioting Greeks, rioting and looting Brits, European Central Bank bailouts of bankrupt welfare states, and French and British difficulties sustaining a military operation against a two-bit despot in Libya (the survey was conducted before Qaddafi's ouster from power). The only positive news from Europe seems to have been William and Kate's royal wedding. Whereas the headlines from Asia have featured ongoing economic dynamism, especially in China, and Japan's resilience in the face of tragedy. Such news stories no doubt color public opinion; whether they indicate merely rough weather for Europe or an enduring change in the climate of American priorities remains to be seen.

Transatlantic Trends finds continued high approval ratings of 75 percent for President Obama among European publics -- certainly much higher than his cratered approval ratings in the Middle East, let alone here in the United States. However, when it comes to the Obama administration's specific policies, Europeans are less approving. This gap between high personal approbation and lower policy support risks becoming a permanent feature of President Obama's legacy. And it has been a persistent problem for his presidency, from his first year in office when despite stratospheric popularity he failed to secure European support on issues such as the transfer of Guantanamo detainees, increased troop commitments for Afghanistan, or even the (not to be) Chicago Olympics, to more recently when Europeans disregarded his Administration's calls for renewed stimulus spending and increased defense budgets. The reason for these policy failures may be rather straightforward, as revealed by the survey results: European publics, like their American counterparts, distinguish their personal sympathies for President Obama from their policy disagreements with him. This is an endemic weakness of the personality-based politics that characterized Obama's 2008 campaign.  

One of the survey's most dispiriting results concerns Afghanistan. Now only 41 percent of Americans express optimism about stabilizing Afghanistan, down from 51 percent last year. And clear majorities of Americans and Europeans (66 percent in both cases) favor reducing or withdrawing entirely the NATO troop presence. For Europeans this number is about the same as last year, but it marks a dramatic increase in American pessimism from last year's figure of 41% favoring reduction or withdrawal. This no doubt stems in part from public fatigue with the decade-long mission in Afghanistan, but in the American context is also likely influenced by President Obama's persistent unwillingness to make the case to the American people for the importance of the Afghanistan mission and why our troops are fighting there.

One area that President Obama has devoted substantial speechmaking is on the budget, yet here he also faces an uphill battle on public opinion. While 61 percent of Americans support cuts in overall (i.e. primarily domestic) government spending, only 34 percent want to decrease defense spending, while 45 percent support maintaining current levels, and 19 percent support an increased Pentagon budget. The Obama administration has thus far taken the opposite approach, pushing repeated slashes in the defense budget while on domestic spending variously remaining non-committal on cuts or even at times supporting increases.

Another curious finding concerns public support for democracy promotion. As the survey describes, European support (69 percent) is almost twice as high as American support (37 percent) for promoting democracy overseas -- figures that have remained largely unchanged over the last four years. This certainly cuts against the stereotype of crusading, idealistic Americans and cynical, world-weary Europeans. Yet perhaps it reveals a policy opportunity as well. Now that President Obama has abandoned his earlier disinterest in democracy promotion and rightly proclaimed his support for freedom movements in the Middle East, the United States can substantially upgrade its cooperation with EU countries on democracy promotion in the region. Given the troubled crossroads bedeviling the Arab Spring, such an initiative would be good for U.S.-EU relations and good for the Arab world as well.