Jim Trippon: German Chancellor Angela Merkel made a quick pilgrimage to Europe’s major trading partner, China, which shows again, among other things, how important the economic ties of the two regions are. While the eurozone continues to wrestle with its debt crisis and its economic direction and China wrestles with its economic slowdown, China’s leaders showed that they still have Europe on their minds. Chancellor Merkel, who’s has been the steering force behind much of the wrestling over the European Union’s attempts to craft solutions for the eurozone’s troubled economy, a task some would say is much like herding cats—very ornery cats, in this case—found time to travel to Beijing to meet with her counterparts, China’s President Hu Jintao and China’s Premier Wen Jiabao. The main agenda was reassurance.
Euro/US Dollar One Year Chart
Two Way Street
Merkel’s second visit to China in the last six months and her sixth trip since she took office, found the topic of reassurance going both ways. That is, Merkel wanted to reassure China’s leadership that the things being done and proposed in Europe were working or were going to work, that the measures already undertaken were truly steps that would lead to a lessening of the debt crisis. Why the worry on Beijing’s part? Europe, as collectively the major trading partner of China and as China’s major export market, needs to have both a more stable economic footing and a light at the end of the debt crisis tunnel, that light being resumption of economic growth.
Merkel wanted reassurance that China, which has been buyers of European sovereign bonds, would continue to at least hold their investments. Beijing had been investing in Europe to counter its heavy holdings of US dollars, and wants to see the euro as a counter balancing currency against the dollar. So there is tight, vested interest going both ways for both Europe and China.
While the visit involved the usual touring of showpiece attractions, such as the Forbidden City and travel on a high-speed train, Merkel brought several government officials as well as important industrial leaders along for high level talks that included everything from cultural and political issues to climate issues, but of course mostly economic ones. Merkel’s meeting with several of China’s important economic officials, including central bank and finance officials, was chiefly to deliver the message that the eurozone was going to stick together, and that Germany was determined to see that through. More than that even, the visit showed the special ties between Germany and China.
While China has no doubt taken unspecified losses as has any investor in certain euro investments, most notably the Greek bonds which has seen investors take a massive haircut in a drastic restructuring, Beijing has on a couple of occasions made plain that it was not and still is not going to ride to the rescue of Europe with any massive cash infusion. Yet premier Wen, even as he expressed worries about the eurozone debt crisis, said that China is still willing to invest in euro bonds and support the European efforts to overcome the eurozone debt problems. President Hu added that Europe would need to resolve the difficulties, though, for global economic recovery and, more precisely, China’s economic development. So the message was one of both support and caution.
German Ten Year Bond
Along with the continued mutual economic reliance of China (NYSEARCA:FXI) and Europe (NYSEARCA:VGK) on each other, more than German leadership has come to the forefront. Germany and China have a specific and growing economic bond. Germany (NYSEARCA:EWG) is by far the strongest economic player in the EU, and its match of technology and industry fit very well with China’s need and desire to upgrade its manufacturing and technology. The relationships with German partners for joint ventures will no doubt continue to expand, though this no less important yet non-headline news will also enhance China’s economic development both short and long term.
There are still many matters for Europe to tackle. The ongoing weakness of Spain (NYSEARCA:EWP), Greece and Italy (NYSEARCA:EWI) are worries. China has a host of its own economic issues, such as its property markets, credit availability, domestic demand, and the calls to do more to stimulate its economy. But Europe is still on its mind, and will continue to be.
Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon, an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has been featured in top publications both in the US and abroad including Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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