June 5th, 2012
08:08 AM GMT
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Hong Kong (CNN) – China is drafting plans on how to deal with the financial fallout if Greece leaves the eurozone and its economic implications for Beijing’s largest trading partner, according to state-run media.

"The government is working on plans for the worst-case scenario of Greece leaving the eurozone later this year," Wang Haifeng, director of international economics at the Institute for International Economic Research, told state-run China Daily Tuesday.

China Daily quotes unnamed sources as saying the ministries of finance and commerce will examine the potential impact of a Greek exit on exchange rate, capital flows and trade.

The news comes one day after credit rating agency S&P gave a one-in-three chance Greece will leave the eurozone, warning that Greece could lose its financial lifeline if voters elect on June 17 a government opposed to bailout terms, CNNMoney reports.

The biggest concern for the world’s second largest economy isn’t the departure of Greece itself, but the knock-on effect its departure would have on the 17-nation bloc financially united under one currency. The Greece departure would roil China’s capital markets, put pressure on its exchange rate and damage trade at a time when the government is trying to cushion its decelerating economy from a hard landing, analysts say.

“Chinese officials should be under no illusion that the country will be immune to financial contagion. A “Grexit” would hit European banks that hold peripheral eurozone countries’ sovereign bonds,” economist Yu Yongding, a former central bank advisor, wrote last week in a widely syndicated article. “Shock waves from the deleveraging would, in turn, spread to emerging markets like China.

“Although the exposure of Chinese banks and financial institutions to eurozone sovereign and banking-sector assets is negligible, post-Grexit capital flight from risky markets could rival, or even surpass, that in the weeks following Lehman Brothers’ collapse in September 2008,” Yu wrote. “Compared to 2007 and 2008, foreign investors’ holdings in emerging markets are much higher, owing to these countries’ relative economic strength in recent years and rock-bottom returns on developed-market financial assets.”

Warnings on the impact of a Greek exit come amid signs that China is weighing stimulus options to spur growth. Meanwhile, the Financial Times reports that concrete companies – a bellwether industry for China’s once booming property market – are showing signs of a credit bubble. And the government has warned that Chinese steel trading companies have “borrowed excessively from banks and then used the funds to speculate on property and stocks,” according to a banking regulation directive viewed by the Financial Times.

soundoff (25 Responses)
  1. Paul

    How evil the Chinese are for wanting to protect their finances.

    I mean, just look at those glasses.

    June 5, 2012 at 8:19 am |
  2. Jack Frost

    I hope the chinese government takes a bath and is left holding billions in worthless paper.

    June 5, 2012 at 8:35 am |
  3. WhateverWhite

    White people are the most evil race on earth. They slaugthered millions of others and took away their lands and exterminated their languages, cultures, and traditions. Now their hatred toward other are on the march again. They are so jealous, and can not accept others' success or prosper. What goes around will come back around.

    June 5, 2012 at 12:26 pm |
  4. Liva Ed

    Very chinese is really who? Financial geedy?

    June 5, 2012 at 1:38 pm |
  5. SnoShadow

    Paul, I assume you got no finances to protect and you don't own a pair of sunglasses, figures..

    June 5, 2012 at 2:15 pm |
  6. billtaxi

    I think how Greece goes out for the euro and you will live the default.

    June 5, 2012 at 4:45 pm |
  7. BS

    It has become more and more entertaining to see those whitle trashes subhuman westerners are struggling and getting poorer... lol....

    June 5, 2012 at 5:54 pm |
  8. China

    And of course the green paper held by CHina is worthless.

    But does USA have them?


    Worthless green paper USA also does not have.

    THe loser USA.

    June 5, 2012 at 6:13 pm |
  9. China

    What has USA?

    Now USA has only one Mouth.

    Without that mouth USA has nothing.

    June 5, 2012 at 6:13 pm |
  10. jsr

    As always, Chinese are practical, cool, restraint, look at long haul, patient AND PREPARATION.

    Meanwhile Westerns are sticking their head in sand (denial), hoping for a miracle, arguing/blaming others. Bye Bye, EURO and eventually USD (next years); 2013 Fiscal Cliff. President Dwight Eisenhower warned the nation in his 1959 Farewell Address to the Nation; Butter & Bread OR Bombs, but NOT BOTH.

    June 5, 2012 at 8:04 pm |
  11. jsr

    Jack- actually the Chinese are very smart in USD too. They're buying up assets all over the world and paying for them in USD. They know they're worthless, will be devalued @ some point so why not: use while value still high to buy precious natural resources, spread risk around the world.

    No different than what Congress did to Military Industrial Complex; spread the work, jobs, money throughout USA so when someone talks about cutting Defense (notice the word defense, not invasion, aggression , National Security, National Strategic Interests) Congress says NIMBY (not in my backyard). Butter & Bread or Bombs, not both.

    So the Chinese again very capable, because they think of the greater good, greater community, not an address, zip code, employer, etc.

    June 5, 2012 at 8:10 pm |
  12. china zhouweijie

    China is a beautiful country, full of unfair government officials, pleasure-seeking, corruption, and made the hard times as a Chinese person, I feel sad.I hope to change the government.

    June 6, 2012 at 12:33 am |
  13. are you serious?

    Wishing ill fortune on China is nonsense. If China loses we all lose. I think we all need to start realizing that the world is no longer made up of just individual countries, but rather a community of countries that are highly interdependent on each other. What affects one affects all.

    June 6, 2012 at 1:33 am |
  14. Hot Wheels

    Europe can sell Greece to China, and the Chinese can send 100 million Chinese to resettle in Greece to make Greece a new manufacturing powerhouse in Europe.

    June 6, 2012 at 2:31 am |
  15. Cam

    It seems as though this comments page has been over run by racists with comments like, "White people are the most evil race on earth" and "whitle trashes subhuman westerners". At the end of the day China has no future economically without the rest of the world, especially the west, we are the people that buy Chinese goods. Greece leaving the Euro is no good for anyone. Oh and if you're going to write comments like,"whitle trashes subhuman westerners"on an English language news site, know how to speak English!!

    June 6, 2012 at 3:31 am |
  16. Chocolate cupcakes

    Europe should CHEXIT and get their factories out of China. Time to show the sweat shop owner who is boss.

    June 6, 2012 at 4:23 am |
  17. Guest1351235

    And another non-event commented by CNN... which country on earth hasn't thought about the effect that would have the greece exit from the EZ on the markets? Appart hypothetically countries ruled by nobrain governements...

    June 6, 2012 at 6:49 am |
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    June 6, 2012 at 3:53 pm |
  19. aurelius

    The Chinese should show some business savvy and bail out Greece. Next thing would be to introduce the Chinese language to Greek schools. They'd also be buying 500 years of the most advanced civilization – - – once upon a time. Then the Greeks can teach them out to perfect tax evasion on a grand scale.

    June 7, 2012 at 3:58 am |
  20. Howard

    These comments are polarized just like our two political parties in the congress. It happens everywhere in every democratic countries. In this world everything is relative with two extremes. It exists in the universe, physical, biological, medical, spiritual, and so on and so on. Just take the middle road, as Confucius said, you will not be

    June 11, 2012 at 6:27 pm |
  21. Luis

    Its proper that ancient western country like Greece will be supported by another ancient eastern country like China.By the way who will help the antique?

    July 17, 2012 at 7:25 am |
  22. pharmacy

    Pretty nice post. I just stumbled upon your weblog and wished to say that I've truly loved browsing your blog posts. In any case I'll be subscribing to your feed and I'm hoping you write once more very soon!

    July 18, 2012 at 12:19 pm |
  23. Paolo Morra

    I do not find the possibility of Greece leaving the eurozone nice. The EU may have some rules that are occasionally too strict, however it would be more peaceful for Greeks to try to diminish some of the excessively strict EU rules whilst still in the eurozone, rather than seeing China and the USA arguing over who should hold the Greek economy and territory under its own complete influence. I prefer a more moderate approach to the Greek problem if possible.
    bye, pmorra73

    July 30, 2012 at 11:28 am |
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    Very good phrase

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    September 15, 2012 at 4:55 pm |

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