What should China do if Greek exit euro?

(China Daily) Updated: 2012-05-29 10:43

Editor's Note: A specter is haunting the world. It originates in Europe and it makes every Chinese businessman shudder. Will the eurozone fall apart if Greece drops out? And what impact would this have on China? These questions have dominated many conferences of economists, business leaders, and international relations experts in Beijing over the past couple of weeks.

Although many of them have said, or rather hope, that the chances of a Greek exit are still small, there is considerable concern that, should it happen, it would cause problems for the Chinese economy, which relies heavily on exports to Europe. Economists say that, in this context, the best protection for China is to press on with economic reform.

What other policies can China implement to lessen the impact of economic decline in Europe?

Wang Haifeng

Director of international economics at the Institute for International Economic Research, a think tank under the National Development and Reform Commission

What will be the implications for China if Greece leaves the eurozone?

The chances of Greece leaving the eurozone, I believe, remain small. And even if it leaves the zone, the economic effect on the European Union and China will be small, since the market digested information about that possibility almost half a year ago and has adjusted itself accordingly. Meanwhile, the EU has also prepared itself to soften the effects of a Greek exit as much as possible.

The exit, though it will harm Greece and the EU economy in the short term, may not be a bad thing for both in the long run.

Compared with a Greek exit, a decision by Italy and Spain to leave the eurozone would pose real difficulties. Italy's ability to affect the EU economy, to some extent, threatens to be as great as what Lehman Brother's bankruptcy did to the US economy during the 2008-09 period. But the chances of that happening are small.

Will China be able to handle the economic fallout without Greece?

The debt crisis in the EU has mainly affected China's economy through trade and investment. Most of the effects, though, appeared last year, thus leaving less room for further deterioration. Since late last year, China's export growth has slowed. Shipments overseas rose a mere 4.9 percent year-on-year in April, compared with 8.9 percent in March, according to the General Administration of Customs.

If Europe becomes less important as an import and export market, where else can China look?

China's exporters, in fact, have been doing more to explore emerging markets, while the EU and US economies have slowed down. Meanwhile, as Chinese products remain able to compete on price, they should continue to be popular among overseas users even in a sluggish economy.

What other policies can China implement to lessen the impact of economic decline in Europe?

I would suggest that the government be more tolerant of a reasonable economic slowdown and pay more attention to the quality of (economic) growth. There's no need for the central government to change its existing domestic policies radically in response to the worsening EU debt crisis as long as the country's rate of GDP growth remains above 7 percent. China should take bold measures to prevent the EU economy from deteriorating.