China vows to help Europe beat debt crisis

5th January 2011, Comments 0 comments

Chinese Vice Premier Li Keqiang vowed on Wednesday to help Europe beat its debt crisis, starting a three-nation tour with promises to buy Spanish bonds and sign multi-billion-euro contracts.

Li, widely tipped to be the next premier, delivered a significant vote of confidence given China's world record foreign reserves of 2.648 trillion dollars (2.0 trillion euros), much of it in euros.

On his visit to Spain, Britain and Germany, he is backing Europe's recovery efforts and seeking to soothe global market fears of a debt quagmire spreading from Greece and Ireland to Portugal and even Spain.

"China's support of the EU's financial stabilisation measures and its help to certain countries in coping with the sovereign debt crisis are all conducive to promoting full economic recovery and steady growth," Li said in an opinion piece published in German daily Sueddeutsche Zeitung on Wednesday.

Li opened his tour on Tuesday by promising to buy more Spanish debt when he met Finance Minister Elena Salgado.

"We believe Spain, with its government and people working together, will surely overcome current economic and fiscal difficulties," Li was quoted as saying by China's official Xinhua news agency.

The minister, who will also meet Prime Minister Jose Luis Rodriguez Zapatero and King Juan Carlos, said Beijing was a long-term, responsible player in the Spanish government bond market and had not reduced its holdings.

China had even increased its buying activity amid European debt concerns, Li reportedly said.

"We will buy more depending on market conditions," he promised.

Spain's central and regional governments and its banks need to raise about 290 billion euros in gross debt in 2011, including rolling over existing bonds that expire.

That opens the risk of "funding stress" as rising rates make it increasingly expensive for the state to raise money, Moody's Investors Service warned last month.

Any EU or international bailout for Spain would be far bigger than anything seen to date in Europe -- its economy is twice that of Greece, Ireland and Portugal combined.

China's help could be important.

"I think it's very significant for Europe, not just for Spain. I think it puts in a very important signal in the financial markets as well," Beat Lenherr, chief global strategist at LGT Capital Management, told CNBC television.

China and Spain will also sign 7.5 billion dollars' (5.7 billion euros') worth of governmental and commercial contracts, Li told a breakfast meeting Wednesday of Chinese and Spanish business leaders, Xinhua said.

According to the Spanish daily El Mundo, the countries will sign commercial deals worth one billion euros (1.3 billion dollars) with a dozen Spanish firms, including with flight simulator manufacturer Indra, and the Spanish branch of Vodafone.

Spain's finance minister told Li on Tuesday that Chinese investors played an important role in stabilising financial markets and suggested the two countries join in developing markets in Latin America.

Li reportedly said he was confident in the Spanish measures to fight the crisis. "We believe Spain, with its government and people working together, will surely overcome current economic and fiscal difficulties," he said.

He suggested China and Spain expand cooperation on trade, investment and new energy.

The Spanish government has slashed spending and says it is on track to meet its promise to lower the public deficit from 11.1 percent of annual output in 2009 to the European Union limit of 3.0 percent by 2013.

The economy, the EU's fifth biggest, slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of the once-booming property market.

It emerged with tepid growth of just 0.1 percent in the first quarter of 2010 and 0.2 percent in the second but then stalled with zero growth in the third.

© 2011 AFP

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