Reuters, 14 November 2011
By James Pomfret

(Reuters) – As a cash-strapped Europe scrambles to woo China’s support for a financial rescue package, human rights groups and dissidents are warning that in taking such help, the West will sacrifice some leverage over China.

To clinch a deal, Chinese negotiators will insist on safeguards for their money possibly including preferential creditor terms or guarantees should the crisis worsen.

More than that, however, Europe’s desire for China’s foreign reserves to calm markets and normalize sovereign borrowing costs could see China push hard for concessions, including market economy status and easing restrictions on high-tech imports.

A big China bail-out “could represent a major change in the global landscape: the consolidation of China’s economic dominance at the expense of the status quo powers – the United States and Europe,” Arvind Subramanian, with the Center for Global Development, wrote recently.

The idea of Europe going cap in hand to an autocratic regime with a poor rights record and an increasingly assertive political and economic agenda is making many in the Chinese dissident and human rights communities nervous.

“If you take from somebody you have a shorter hand. If you eat from somebody you have a softer mouth,” said Wu’er Kaixi, an exiled Chinese dissident and former student leader of the 1989 pro-democracy Tiananmen Square demonstrations.

“There’s tremendous political risk in letting China have its way,” Wu’er told Reuters by telephone from Paris. “When you give China so much power, they use it in their own way. They don’t follow the rules or codes.”

International pressure on human rights irks China and tarnishes its global reputation. This year, China has cracked down on dissent and ethnic tension in Xinjiang, where 32 people were killed, and in Tibet. More than 10 ethnic Tibetans have set fire to themselves in defiance of strong-arm Chinese rule.

But by lending to Europe, such criticism will almost certainly be dampened by allowing “China to seize the moral high ground”, says Willy Lam, a political commentator in Hong Kong.

The 17-nation currency zone’s bureaucracy and lumbering politics make the likelihood of deep concessions to China remote, particularly any compromise on a longstanding arms embargo imposed after the Tiananmen Square crackdown.

But China’s $3 trillion in reserves remain a tantalizing target for the bloc.

“Although the U.S. has borrowed extensively from China for a decade without making major concessions, European disunity on debt management will make it a struggle for the EU to avoid such concessions to Beijing,” write François Godement and Jonas Parello-Plesner, senior policy fellows with the European Council on Foreign Relations think-tank, in an upcoming report.

Already, China has acquired a vast number of strategic assets globally, including car makers like MG and Volvo, stakes in ports and airports, as well as bond-purchases from European states that have built goodwill for future Chinese contracts.

While European leaders like French President Nicolas Sarkozy court China, there remains a deep undercurrent of suspicion about its intentions in European political circles.

European manufacturing associations fear a China-funded bail-out will lead to Europe further opening its doors to Chinese imports, dealing a further blow to EU manufacturers.

Godemont and Parello-Plesner argue Chinese investment in Europe had allowed it “to play off member states against each other and against their own collective interests”.

A CHINESE FINANCIAL CRISIS?

Europe is China’s largest trading partner supplying 17 percent of the European Union’s imports, meaning it is in China’s interests to help stabilize Europe and preserve demand for China-made goods.

But domestic pressure and the specter of a hard landing for China’s economy could limit its support for Europe.

“A few years later China may find itself in a very awkward situation that it itself has to go through a painful adjustment,” said Minggao Shen, the head of China research at Citigroup, who estimates China could only afford to lend a maximum of $300 billion of its 3.2 trillion reserves.

But there is some opposition to any such help.

“Europe is dreaming it can get money from a poor person,” said Chen Ping, chairman of Sun TV, an independent Chinese-language broadcaster whose critical broadcasts and talk shows have been banned in China.

“If China still has money to save Europe, how will the local governments repay their debts at the end of this year and next? How will they pay for expenditures, they won’t be able to solve that,” Chen, the author of “The Era of Recession”, told Reuters in his Hong Kong studio.

“China will have its own financial crisis. And it will be much worse than that in Europe.”

Politically too, China faces problems with inflation, high property prices, land grabs, a wealth gap and corruption.

This, coupled with a watershed leadership transition next year, when stability will be paramount, means its priority will likely be the homefront.

Echoing anxiety about frittering away the nation’s wealth on a profligate Europe, Chinese micro-blogging sites and state media have buzzed with warnings against rash investment in a bailout fund.

Yang Jianli, an exiled dissident who runs “Initiatives for China”, a U.S.-based group advocating democratic change, said it was a misconception that China harbored grand global ambitions.

“They fear losing power the most,” Yang said by telephone from the United States. “Their top business is to survive. Nothing else. That’s the most serious issue facing them, not the international one.”

(Additional reporting by Juliane von Reppert-Bismarck in Brussels; Editing by Brian Rhoads and Robert Birsel)

http://www.reuters.com/article/2011/11/14/us-china-eu-rights-idUSTRE7AD0BG20111114