The European Union's dependence on China
Since the beginning of the 21st century, the European Union (EU) has been heavily reliant on China in order to be able to finance its debt as well as sustain its high standard of living. Despite this enormous dependency, Europe seems to be oblivious to the fact that China can actually pose an enormous threat to it, and will eventually decide to cut ties with it or even worse, make use of that power to become the dominant superpower in the global economy.
Here's why China owns so much EU debt
You may have heard that China has a lot of debt. You may have also heard that much of it is owned by foreigners. And you may have probably heard that they own so much American debt. But what you might not know is just how much Chinese money supports Europe—and why, in light of such massive purchases, it's starting to matter more to investors and traders around the world.
What does this mean for you?
While Europe is attempting to deal with its debt crisis, it remains increasingly dependent on Chinese money. The EU borrowed approximately $1 trillion from Chinese banks between 2007 and 2012; roughly one-third of that amount came from a single transaction in early 2010, when loans made by China Development Bank helped Italy and Spain avoid a default. It’s easy to understand why: not only are interest rates much lower than those offered by U.S. lenders, but there are also fewer stringent conditions attached to these loans.
How does it affect what I buy?
Thanks to cheap goods made in Asia, American consumers can enjoy goods at low prices. In a way, Americans are almost spending money that doesn’t really exist. Cheap goods from China mean Americans don’t have to spend as much of their income on buying goods and services. But what about when that changes? What happens when cheap goods start to disappear from American stores?
How does it affect the global economy?
Ever since it started its phenomenal rise, China has constantly been described as a miracle, so much so that it was even hailed as the next superpower. So what is all of that hype based upon? The answer is simple: if there is one thing that needs to be emphasized when discussing China, it would have to be its population size and growth rate.
In Conclusion
As more and more US dollar denominated debt is issued in other countries, be it Japan, Korea or Europe, these countries will become increasingly beholden to Beijing. If a monetary crisis does occur in China, as many economists believe it will (even Chinese ones), then these countries’ economies are going to feel its effect very rapidly. The Great Britain of 2016 may not seem like much to worry about but in reality that little island has far more power than any of us realize. Who knows who is next?