China getting set to absorb Europe

China Will Back Europe, Euro With Currency Reserves

Bloomberg

Europe and the euro will remain among the most important areas of investment for China’s world-record $2.65 trillion of foreign-exchange reserves, a central bank official said in the nation’s latest show of support.

“The euro and the European financial markets are an important part of the global financial system and were, are and will be one of the most important investment areas for China’s foreign-exchange reserves,” Deputy Governor Yi Gang said in a statement on the central bank’s website.

China’s statements of support have included Vice Premier Li Keqiang this week expressing confidence in Spain’s financial markets and pledging more purchases of that nation’s debt. In backing European economies, China may help to prop up demand in the region that is its biggest market for exports and also the value of its euro-denominated assets.

“In the short term, the market will take this as supportive to the euro,” said Mark Williams, a London-based economist at Capital Economics Ltd. “The problems of the euro zone are structurally deep-rooted and not something that China will be able to solve.”

The euro was today headed for a weekly loss versus 15 of its 16 major counterparts amid concern that European governments will struggle to raise funds as the region’s fiscal crisis lingers. The euro depreciated for a fifth day to $1.2983 as of 7:55 a.m. in London, after earlier falling to $1.2968, the weakest since Sept. 15.

‘Safeguard’ Stability

Yi is head of China’s State Administration of Foreign Exchange, which oversees the currency reserves, and was commenting on the vice premier’s visit to Europe.

“Based on the principle of diversification, investing foreign-exchange reserves into euro zone government debt will not only help safeguard Europe’s financial stability as well as the global market, but will also yield reasonable investment returns, thus help ensure overall security and increase of returns on China’s foreign-exchange reserves,” Yi said.

Li’s opinion pieces in European newspapers this week also expressed China’s support.

“China supports the EU as it helps countries overcome their debt crises and contributes to broad economic recovery and stable growth by means of financial stability measures,” he wrote in German newspaper Sueddeutsche Zeitung.

Borrowing costs for Portugal surged at a six-month bill sale this week, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. Spain and Italy together need to raise 317 billion euros this year, according to BNP Paribas SA.

 

China Owns U.S. and now Wants Europe

Chinese have $2.7 trillion to bail-out bankrupt European nations

Mail Online

China has said it is willing to bail out debt-ridden countries in the euro zone using its $2.7trillion overseas investment fund.

Chinese Premier Wen Jiabao offered to bail-out Greece.

In a fresh humiliation for Europe, Foreign Ministry spokesman Jiang Yu said it was one of the most important areas for China’s foreign exchange investments.

The country has already approached struggling European countries with financial aid, including offering to buy Greece’s debt in October and promising to buy $4billion of Portuguese government debt.

‘To have any discernible effect China will have to buy a lot more than 5billion euros if they expect to have any impact on the negative sentiment surrounding Europe,’ said Michael Hewson, currency analyst at CMC Markets.

China’s astonishing economic growth has put it on track to overtake America as the world’s economic powerhouse within two years, a recent report claimed.

But experts believed still be some years before America’s leadership role is really challenged – largely because Beijing has given no indication it is ready to take on the responsibility of shepherding the world’ economy.

This foray into the future of the euro could be a signal from Beijing that it is ready to change that perception.

The euro rose temporarily on the news of China’s support – but was sinking again this morning to a three-week low against the dollar.

The single currency earlier fell to around $1.3050, below its 200-day moving average currently located at $1.3092 on trading platform EBS.

Investors have pushed the euro beneath this key support level for the past three sessions, only to see the currency bounce back later in the day.

Analysts said the euro will likely hold above $1.30 in the coming days, with traders reluctant to place big bets before year-end.

The outlook for the single currency remains shaky, with fresh losses expected into 2011, they added.

The Financial Times reported yesterday that China had offered to take more ‘concerted action’ to support European financial stabilisation.

It cited unnamed senior European officials after talks with Chinese Vice Premier Wang Qishan.

Portuguese officials have said the government is trying to diversify its debt investor base, with China as a priority.

Finance Minister Fernando Teixeira dos Santos met Chinese Finance Minister Xie Curen and the head of the People’s Bank of China during a visit to the country last week.

But it is unclear whether Beijing would be prepared to take on so much fresh exposure to Portugal, after domestic political pressure to invest the country’s foreign reserves more carefully.

Chinese investment funds suffered from large, high-profile losses during the global financial crisis.

In October, during a visit to Greece, Chinese Premier Wen Jiabao offered to buy Greek bonds when Athens resumed issuing.

A month later, President Hu Jintao visited Portugal and offered ‘concrete measures’ to help the weak economy, but stopped short of promising to buy Portuguese bonds.

It is still believed that it will be some years before China actually overtakes the U.S. to become the world’s largest economy.

Politicians argue that technology is still behind and much of the country still lives in poverty.

And in another economic measure, output per person, China lags way behind the US.

Last year, the International Monetary Fund calculated gross domestic product per head in the US at $46,000. The GDP breakdown in China was just $4,000 per person.