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Frank Sieren Photo: Frank Sieren
Image: Frank Sieren

Eurobonds for China?

Interview: Danhong Zhang / jrb
September 20, 2012

Europe hopes China can help overcome the euro crisis. Although China is keen to keep the euro afloat, they show little interest in buying more bonds. DW spoke with China expert Frank Sieren about another type of bond.


DW: At the last meeting between German Chancellor Angela Merkel and Chinese Prime Minister Wen Jiabao, the Chinese leader dropped the typical Asian courtesy and voiced his concerns about the euro. You know people in China's central bank. Have they already written off the euro?

Frank Sieren: I don' think so. What I do believe, however, is they are really concerned because the euro is very important to them. They want to have a counterweight to the US dollar; they think in terms of balances. Their concern should be viewed by European nations, especially the leading ones, that they need to find a solution to the euro problem as soon as possible.

Do the Chinese understand why they have not been able to do that so far?

That's very difficult even for experts to understand because from the outside we get the impression, understandably, that Europeans do and don't do things that can hurt them. Normally, in a crisis, you say people grow together and stand by each other. But that doesn't seem to be the case in Europe. And that is particularly difficult to understand in China, where the rich provinces naturally help the poorer ones.

The Chinese are in a bind. On the one hand, they have a strong interest in preserving the euro, having repeatedly asserted their intentions to help crisis countries and having already purchased plenty of their government bonds. On the other, they can't afford, politically, to make another large bad investment after suffering huge losses with their dollar reserves. So how should the Chinese deal with this situation?

When in doubt, let it be - that's how the Chinese government views the situation. I'm surprised that the Europeans aren't able to offer an attractive product to the Chinese - something like a bond that offers a balance between the crisis and stable countries. After all, Europe and China have some similar interests. Both, for instance, want a strong Europe, though for different reasons, of course: the Europeans want to become more competitive, and the Chinese want to have a counterbalance to the US. But in the end, that's not so important. What's important is a bond that offers a balance. I think the Chinese would invest heavily in such an offer, should it ever became available.

What could such a bond look like, in your opinion?

It wouldn't be an Italian or Spanish bond, with the Chinese accepting all the risk. Rather, it would be a mix: a bit of Spanish risk, some German trust, together with a French guarantee. It would be a type of European bond that is balanced and doesn't force the Chinese to rely on any one country. This was the proposal made by the Germans during the last Chinese visit. Buying Italian or Spanish government bonds is something that the Chinese government can hardly sell to its own people, given the risky game it is already playing in America with the vast sums of US treasury bonds it owns.

But aren't these eurobonds something that Chancellor Merkel opposes?

I intentionally avoid using the term eurobond because it is already loaded. When some hear it, they say 'hooray!' while others pull out their knives. A European bond would have to be a product specially designed for the Chinese. Yes, it would be something like a eurobond but specially weighted. In my view, the Germans have no other option but to pay. Who else can? And in such a crisis, the rule of thumb is the sooner you pay, the better. I agree with the fundamental German position that the country should only pay if the beneficiary countries agree to accept conditions. But I believe the country may have missed the right time to do this efficiently. The German government is now in a kind of a dilemma. Its responsibility has lessened some now that the European Central Bank has decided to take action. When the ECB buys government bonds, this is a kind of eurobond in a way.

Danhong Zhang conducted the interview.

Frank Sieren lived for 15 years in China and is one of most renowned experts on the country in Germany. He writes columns about China for the German business newspaper "Handelsblatt" as well as books on the topic. His last book "Fear of China" will be published soon in Chinese.

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