The government is drafting plans to address the potential consequences of a Greek exit from the eurozone as leading Chinese economists warned that such a scenario could plunge the global economy into a new recession.
"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, under the National Development and Reform Commission, told China Daily.
"A plan is being drafted to cushion the possible effect on the exchange rate, capital flow, as well as its influence on trade," said another senior economist, who requested anonymity.
The ministries of finance and commerce are involved in working on the plan, sources said.
Greeks go to the polls on June 17 amid growing concern about the country's possible exit from the eurozone.
"How this entire issue develops will have a direct effect on China and its economy," said an official of the Ministry of Commerce, who also declined to be identified.
But the Chinese economy is strong enough to handle any such emergency in the eurozone, Zhang Yansheng, secretary-general of the academic committee of the NDRC, said.
"Even if the worst-case scenario happens and Greece leaves the single currency bloc, the economy will be controllable.
"It would be unwise to overact," he said, adding a massive stimulus package, similar to the one in 2008, was not necessary.
The lessons China drew from the previous financial crisis, following the collapse of Lehman Brothers, was to prioritize shifting the economic structure, he said.
After that crisis, the western regions of China saw greater investment and achieved faster growth than the central and eastern regions, he said.
Wang Jun, a senior economist with the China Center for International Economic Exchanges, a government think tank, said there is no need for China to worry about the consequences of Greece exiting, as the exposure is narrow.
Impact on trade and finance
Greece only accounts for a small slice of bilateral trade between China and Europe, but the risks lie in a possible chain reaction, said Song Hong, director of the Department of International Trade at the Chinese Academy of Social Sciences.
Europe would obviously be effected but it could also drag down the US and Japanese economies, two other large trading partners of China.
Willem Buiter, an economist at Citigroup, agreed that a chain reaction, or contagion, could hit the global economy.
European GDP growth may shrink this year into negativity and any Greek exit would dampen growth prospects for a long time, he said.
In this scenario, the Chinese economy would be hit, said Liu Shiguo, a researcher at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.
"Definitely, China's finance market will also encounter a short-term shock."
A Greek exit could spur sovereign defaults, credit crunches and depreciation of the euro, leading to an unhealthy yuan appreciation and affect China's trade.
"In addition, euro assets, which are estimated to account for more than 20 percent of China's massive foreign exchange reserves, could shrink," Liu said.
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Chinese banks should supply credit for Chinese companies when European banks are in trouble, Liu said.
Keeping a close eye on lending is crucial, said Wang Haifeng under the NDRC.
The Greek case is a warning for Chinese banks to pay attention to their lending, especially to local debt platforms.
Buiter said Greece is likely to start sovereign debt restructuring this year or next. It is also possible, he said, that the European Union may launch a bank-restructuring fund to directly inject capital into banks bypassing governments.
Some Chinese companies have yet to see any impact on their business in Greece. China Ocean Shipping (Group) Company, the largest State-owned shipping conglomerate in China, said it had not yet adopted "specific measures" against Greece's possible exit from the eurozone.
In 2008 the company signed a $4.2 billion-euro ($5.3 billion) contract to operate Greece's Piraeus port, the biggest container port in the country, for up to 35 years.
Hong Kong's economy could be hit hard by a Greek exit from the eurozone, the region's financial secretary John Tsang told the city's legislators on Monday.
"Being a small and open economy, Hong Kong must prepare itself for the challenges brought about by the rapid deterioration of the macroeconomic environment globally."