Amid financial turmoil, China boosts its global influence

It is an odd gesture for a developing country to buy 37,000 BMW's at times of economic mayhem. Yet, this is exactly what China did when it came shopping in Europe last week. It has concluded a deal of 14 billion USD with Germany and will pump billions more in Spain and the UK.

As a gesture of goodwill this certainly matters. In the first place China is using precious savings to pre-empt protectionism in Europe. But the weakening of the European market also forms an opportunity to get access to knowhow and advanced goods. In many ways Beijing is bending the crisis into an opportunity to boost its economic power in the long run.

The global financial crisis is striking the Chinese economy at its weakest spot. Struggling factories and floods of sacked workers reveal the fundamental weakness of its export-led growth. But Beijing refuses to throw in the towel. While stimulating domestic consumption, it is grasping the climate of uncertainty to boost its economic clout abroad. If China succeeds in this two-track approach, the global balance of power will decisively turn in its favour.

'Saving the strong by helping the weak' seems to be Beijing's magical antidote. A new stage of infrastructure building has not only to absorb laid-off workers; it also has to allow companies to tap forgotten corners of the Chinese market. Peasants will receive more subsidies for their crops.

Soldiers, teachers, and officials alike will get better paid. For better public services, for sure, but in the first place to stimulate consumption. In the same vain, social spending and reduced value-added taxes have to convince citizens to save less and to buy more Chinese products.

While foreign investors pull out of China¹s financial sector, the state steps in with fresh money to save its banks and to turn them in obedient policy devices. Investment in research and development has increased, and new projects will be implemented to make its future greener. These measures are no reversal of the Party¹s policies. With a mixture of Keynes, communism, and capitalism, the development of a 'harmonious society'

has rather shifted into a higher gear.

But while it opts for economic defence at home, Beijing pursues a relentless economic offensive abroad. Despite the domestic challenges, it is well aware that this is the moment to secure its interests for the longer term.

China is therefore continuing to buy itself a way into leading foreign companies. In 2008, the value of outbound transactions increased by 35 percent. In the last months, Chinese investors have put their shopping spree on hold, but this is mainly a matter of waiting for better prices. They continue to screen the market for large and small companies with interesting technological knowhow or access channels to foreign consumer markets.

China is increasing its grip over natural resources. While Western companies lack the means to invest in new mining projects; their Chinese peers are continuing to drill for oil and minerals. New projects were launched in countries like DRCongo, Indonesia, Niger, and Peru. Chinese players also eye vital parts of the Australian mining empire. At a moment when commodity prices have collapsed, the central government started to funnel parts of its financial reserves into strategic stockpiles of oil, special grade coal, copper, and rare ores. This is not only allowing China to safeguard supplies, but also to influence future market prices.

Beijing is perking up its influence by coming to the rescue of struggling developing countries. During his latest trip to Africa, President Hu handed out millions of aid in Mali, Senegal, and Tanzania. With Pakistan a 500 million loan package was agreed in January. Such support certainly matters as a gesture of goodwill and a source of diplomatic influence.

Undoubtedly, the People's Republic will strengthen its image as a 'friendly giant'. Washington's massive rescue package would be unthinkable without Beijing continuing to sponsor the Treasury. In that regard, it is telling how China-critics like Geithner and Clinton are silenced. In Brussels, nobody at this moment even thinks of lecturing China about 'reciprocity' and fairer trade policies. This is not only because of the fact that we have all become mercantilists in some way. The US and the EU's posture confirm that China's growing economic power is becoming a hard nut to crack.

Contrarily to the conservative policies of many European countries, China is not tenaciously trying to keep what it has. It is attempting to use the crisis to get more and to do better. This operation is a daunting test to the Party's leadership, and it is not certain whether it will make it. If it does, the West will reawaken in a different economic order.

The writer is head of research, Brussels Institute of Contemporary China Studies (BICCS).