Chinese stock market crisis an accident waiting to happen

François Godement

François Godement

One of the most influential European thinkers on China, François Godement -Director of ECFR’s Asia & China programme and Professor of Political Science at Sciences Po in Paris – gives an interview on He discusses the crisis in the Chinese stock market and whether this could be linked to the Greek crisis, the perspective for more Chinese investments in Greece as well as the role of AIIB and BRICS New Developments Bank

Could the current crisis in the Chinese stock market be linked to the Greek debt one and a potential Grexit?

In a sense yes, because the start of the Shanghai stock market fall, on June 15, follows by a few days Greece’s request for a postponement on its repayments. But the link is not so much financial as psychological. Chinese investors are often fed a very dismal economic view of Europe. In mid-June the prospect of a Grexit and the potential contagion to other EU economies seemed possible, in a replay of 2008. The EU is China’s first external market, it hasn’t been very dynamic for China in recent times, in part because of less European demand, in part because the renminbi went up relative to the euro. Still, domestic reasons predominate. The Shanghai market had gone up by 150 % in a year while the Chinese economy was slowing down. It was an accident waiting to happen.

Is China looking for alternatives as far as its investments in Greece are concerned – taking the ongoing instability into account?

The Greek situation for investors such as China is very different from 2010. Then, Athens needed buyers – eventually discount buyers – for its debt. Today, the EU and the ECB mop up a lot of the debt – the issue is now repayment, postponement or reduction of debt. China is hardly involved there. It reportedly got caught once in a “haircut” for Greek debt that it had bought in 2010. This gave Greece a bad name. But investment is now the name of the game for Greece, and with the turmoil in the Near East and fear of similar trends in Egypt (again, pessimistic assessments by Chinese and risk avoidance) led China to locate the terminal point of its maritime Silk Road in Athens.

I fear however that the difficulty for China to grasp the current Greek government’s political logic does not encourage much more investment. China certainly noted that the government gave up on the idea of renationalizing the Piraeus container terminal, but must have noted the political uncertainty, and also that China has less leverage over Greek decisions than, say, a major European lender.

Could China provide loans to Greece via instruments such as BRICS New Development Bank and AIIB?

That’s an interesting question. The Silk Road and OBOR stretch all the way to the Mediterranean. I still think this is a far cry. China must be watching also the debate between the EU and the IMF (of which it is a funder, if not a major one) on debt forgiveness. My instinctive judgement is that Beijing may go for interesting investment and infrastructure projects, but will not be interested in what it still sees as politically risky lending.