How will the Greek referendum result affect China?
- By Hou Yi
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E-mail China.org.cn, July 11, 2015
Investment risk
In recent years, Greek government has sped up the drive to privatization to avoid its bankruptcy by selling state assets such as ports, islands, roads, banks and airports. Meanwhile, China has increased its investment in Greece to promote the country's economic recovery. But most of Chinese investment is in the real economy instead of buying government bonds. Statistics from the Bank for International Settlements show that China has no more than US$3.7 billion Greek government bonds.
In June 2010, shortly after the international credit rating system downgraded Greek government bonds to BA1, China signed contracts worth tens of billions of euros with Greece during Vice Premier Zhang Dejiang's visit.
The contracts included COSCO's ship building order, contracts for hotels and shopping mall constructions in Piraeus, technology exchange program between China's Huawei Technologies and Greece's largest telecommunications provider OTE, olive oil exports, an airport in Crete and a logistics center and ocean theme park in Athens.
During Premier Li Keqiang's visit to Greece in June 2014, China expanded its cooperation with Greece in fields of energy, trade and shipping with deals worth around US$5 billion. China Development Bank and Greek leading containerships owner Costamare Inc. inked a US$1.5 billion agreement for strategic cooperation focusing on renewable energy and shipping. China's Fosun Group will co-develop the Ellinikon area where the old Athens airport is located with a local developer and build hotels, residences and parks in 10-15 years.
Premier Li said that China had never given up on the bond market in Greece. On the contrary, he said China would buy more. China is and will be a long-term and responsible investor in Greece.
At present, a number of Chinese new energy companies have invested in Greece. Chinese solar energy leading companies such as Hanergy, SINOHYDRO and Sky Solar Group have all entered the Greek market. Dongfang Electric Corporation has invested 2 billion euros in its solar energy program with DTX Equipment in Greece.
The Diplomat magazine believes that China's investment in Greece will hedge the impact of capital withdrawal from other countries, and spur its economic growth.
However, Chinese investors should be cautious of risks caused by the unstable political status. In January 2015, the newly-elected Prime Minister Alexis Tsipras halted the privatization of Port Piraeus in which COSCO was assumed to be the last winner. After Chinese investors bought 200 million euros of government bonds, the Greek government restarted the process in May.
As for macro economy, the Greek economy only makes up 2 percent of the eurozone, which means the Greek default will have a limited effect on economies outside Europe.
According to Liu Shaojia, an economics professor at Brunel University in the U.K., the Greece crisis and its exit would constitute both advantages and disadvantages to the Chinese economy.
If the crisis gets worse and Greece exits the eurozone, it will cause the euro to devaluate and thereby affect China's exports. Moreover, if the Greek government repays China with new currency, China will experience great losses, said Ruan Cishan, a commentator with Phoenix Television.
But the exit would cause Greek assets to plummet and attract lots of funds from China, Japan and Saudi Arabia. China has not been one of Greece's top 10 investors, so that means great market potential for Chinese companies.
However, many economists do not think that the exit will happen in 2015. The short-term funding gap in Greece is relatively small and the country's will to stay in the eurozone is still strong.
This article was first published in Chinese and translated by Li Shen.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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