11/03/2011 10:55 EDT | Updated 01/03/2012 05:12 EST

China's Pound of Euro-Flesh


As the euro bailout proceeds, there are almost daily references to some foreign country that is being lobbied to 'contribute' to an aspect of the fund. China and Japan are the most commonly mentioned potential suitors for guaranteeing or buying new Eurobonds. The details are sketchy as to the extent of both's participation, and likely undetermined for now.

Japan may be interested only to show some countervailing flushness to China's largesse, but there may be a unique opportunity here for China as well.

Given the European Union's occasionally expressed but steady desire to define their role in the world apart from the United States, and given the eurozone's relative weakness right now, a close relationship with China may be seen as the only non-U.S. alternative for them to pursue.

Great Britain has already said it will not give to any eurozone-only fund outside of its IMF commitments, and it is hard to imagine the U.S. going farther than IMF payouts as well. No one has yet claimed that this Anglo-American funding void has pushed the eurozone into the arms of China, but there is no question of the eurozone's desperate attempts at unreformed survival.

Most troubling is the transformation of a eurozone-only bailout into an influence-peddling bazaar using the language of charity (hence why their donations are called 'contributions'). It is an open question whether promises eurozone member states make will be expected to also be upheld by non-eurozone Union members, but it is nigh certain that eurozone members and the Commission will try to sell the benefits of contributing that way. These so-called contributions will come at a price.

It is perfectly clear what China would like to exact out of any Eurobond deal. China wants the EU and the U.S. to recognize its 'market economy' status under WTO rules now, before they are scheduled to do so in 2016. This would allow China to launder its past and future dumping and currency-manipulating actions. Having 'market economy' status under WTO rules also makes it much more difficult to punish China for their anti-competitive behaviour, and the drums are beating in the United States for just that.

Whether China's overtures are seeking to separate the U.S. from the EU members' solidarity against China's WTO status, or if it is part of a more comprehensive attempt to realign the eurozone away from the United States (both may be the case), even the former would be a big win for China at a very affordable cost. Once the eurozone is on board with China's agenda, China can rely on their serious pressure on the rest of the EU to help it get what it wants.

This article was previously published at FrumForum.