To start with, I would like to talk about what is white knight. According to wiki, in business, a white knight, or “friendly investor,” may be a corporation or a person that intends to help another firm which engages in financial problem . As we know that Europe is confronted with a severe debt crisis which economic situation is highly complex and uncertain. China, as a white Knight , intends to provide financial support to EU which is struggling with the debt crisis. So, we can see what white knight is. How to be a white knight
We know that EU is facing debt crisis and has to regain Market’s confidence. Since EU members borrow too much and they can’t pay it back, they are hard to recover the market. But we know that China has the funds, which manages $3 trillion in reserves, can make a great difference. If china invests $1 trillion to make an impact in Europe, it will motivate more investment on Europe market and rebuild investor’s confidence. For example , Italy in walk with china about “ Bond Purchase “ , The Financial Times reported that Rome had asked China to buy “significant” quantities of its bonds.
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It is because Italy is not capable to pay its debt and investors have lost confidence in Italy’s ability to extricate itself from the euro- zone debt crisis. So, if china decides to purchase, it will allow Italy to cover the cost of redeeming all the debt that Italian finance ministry has falling due. What is more, Spain has been hit hardly by the global financial crisis and the Spanish government’s finances have been under great pressure. China signed $7. 5 billion worth of agreements with Spain in order to help the country to deal with its financial problems.
Also, China and British has agreed to cooperate in areas such as the economy, trade, investment and finance, such as Chinese premier Wen Jiabao sealed a package of trade deals worth ? 1. 4billion with Prime Minister David Cameron. that may increase both commercial and economic profit. Therefore , we can see how the china serve as a white knight. The reason behind being a white knight Since China exports ample of goods to Europe every years, if Europe financial arket collapse, China , the biggest exporter in the world , will be suffered because of losing a important trading partner. So, it is a must for china to be a white knight. Apart from avoiding its economy growth being suffered, China also wants to increase its influence over the Europe. Through buying the bonds and giving monetary support ,which is similar to the Marshall Pan , will help to build a cooperative relationship between china and EU. What advantage will china get from helping EU. Individually, China will gain a good international image from the EU citizens.
Due to this, Chinese enterprises will easily promote their goods to EU market. Domestically, China can reduce the investment risk. For example , Purchasing Italian and Spanish bonds will be a wise move to diversify Chinese foreign exchange reserves , which rely too much on US government bonds. For the interstate, owning to buying debt, china can extract lots of substantial value , such as strategical assets . For example , thanks to buying Greek government bonds , a Greek port leased by state-owned shipping enterprise Cosco.
As the relationship between the EU to China is being more friendly, it will encourage the EU to relax restrictions on hi – tech exports to China and recognize China’s market economy status. Globally, apart from building a friendly relationship, helping the EU emphasizes China is not a financial or political competitor. That means when china implement some policies in WTO or other aspects , China may get EU support. Beside, because of the helping EU , China may not be harshly forced to appreciate the YAN . by chankc