Document Type

Article

Publication Date

6-3-2021

Abstract

How did the financial and trade ties between China and the Eurozone develop in the aftermath of the Eurozone sovereign debt crisis? We analyze these trends until the start of the Covid-19 pandemic. Using data from the Bank of International Settlements (BIS) and the International Monetary Fund (IMF), we examine the financial and trade dynamics between the two currency areas and analyze the related risks and opportunities. The data point to several patterns. We find that financial volatility in China has been substantially greater than in the Eurozone. Even so, the largest and strongest Eurozone economies – France and Germany- have largely kept their investments in Chinese assets after a four- to six-fold expansion that started in the mid-2000s. In contrast, the financially weakest countries have accounted for the largest increases in trade volumes between China and the Eurozone. We also find that trade volumes are correlated with holdings of Chinese financial assets but assets rose at a substantially smaller rate than trade. These results show that China and the Eurozone continue to be asymmetrically integrated, whereby Eurozone countries still invest more timidly in Chinese financial assets compared to the aggressive trade and infrastructure partnerships initiated by China. We discuss the implications for future financial and trade integration between the two currency areas, which is bound to deepen in light of the Comprehensive Agreement on Investment.

Comments

This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Asia Europe Journal, volume 19, issue 4, in 2021 following peer review.  The final publication may differ and is available at Springer via https://doi.org/10.1007/s10308-021-00619-1.

A free-to-read copy of the final published article is available here.

This scholarship is part of the Chapman University COVID-19 Archives.

Peer Reviewed

1

Copyright

The authors

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