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Europe's Slowdown Will Hurt China: Investment Pro

Thursday, 28 Jul 2011 | 3:30 AM ET

China's economy could face significant headwinds from the slowdown in Europe, its main export market, as European demand for Chinese goods falls, Derek Han, chairman at North Square Blue Oak, told CNBC on Tuesday.

Great Wall of China
CNBC.com photo composite
Great Wall of China

"The Chinese economy will continue to be very strong," Han said, but "there is a certain amount of concern."

China's gross domestic product is expected to remain fairly high in the coming years, but the country is not completely isolated from problems in Europe and the United States.

"Europe is the number one export market for China—much more than the United States," Han explained. "Seeing the sort of confused last minute patching together of a so-called solution—which isn't that much of a solution at all—is an element of great worry."

"If there's a real crisis in Europe, over Greece, Italy, Spain… it is going to cause a certain amount of difficulties within the financial institutions and could possibly also slow the demand for Chinese products," he said.

Chinese officials are monitoring the European sovereign debt crisis very closely and a slowdown in European demand for Chinese goods could impact the country's economy by causing inflation to rise.

Han explained that, in order to tackle the slowdown in demand for Chinese manufactured goods, China would have to undertake measures that would not be compatible with its fight against inflation.

"They're a little worried of really clamping down to hard in case there is a major slowdown in Europe in the fall after the summer holidays," Han said, "so they don't want to have a start and stop situation, so they're trying to do it somewhat softly with an eye to possible future problems."

Europe a Concern for China's Exports
"The Chinese economy will continue to be strong," Derek Han, chairman at North Square Blue Oak, told CNBC, however, he added, "Europe is the number one export market for China, much more than the United States¿ and seeing the sort of confused last minute patching together of a so-called solution¿which doesn't seem that much like a solution at all¿is an element of great worry."

The other way the European sovereign debt crisis might impact the Asian giant is through European bonds.

"Their foreign reserves are held...due to the large amounts, mostly in US assets, but there is also a considerable amount that is held in European assets," Han said.

"Every time that we've seen premier Wen Jiabao, or other top Chinese leaders visit Europe they always make broad comments that they will continue to buy debt," Han noted, adding that this is no new pattern for China.

"They're really not saying anything new, they're of course looking for a way to support Europe, because it is an important market," Hen said.

Correction: This story was corrected to show that Han explained that, in order to tackle the slowdown in demand for Chinese manufactured goods, China would have to undertake measures that would not be compatible with its fight against inflation. A previous story made reference to European manufactured goods.

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