China backs Spain to emerge from economic crisis

China is confident Spain will recover from its economic crisis and will continue to buy Spanish government bonds despite market fears of an Irish-style debt bailout, a top Chinese official said Monday.

The comments by Vice Premier Li Keqiang were made in an op-ed piece in Spain’s leading daily El Pais one day ahead of his arrival in Madrid for a three-day official visit, the start of a European tour that will also include Britain and Germany.

“We have confidence in the Spanish financial market, which has been translated into the acquisition of its public debt, something we will continue to do in the future,” he said.

“China supports the measures adopted by Spain for its economic and financial readjustment, with the firm conviction that it will achieve a general economic recovery”, said Li, who is widely tipped to become China’s next premier.

Investors have been spooked by the public deficits racked up by the Spanish government and its heavy reliance on the bond markets for fresh funds, leading them to demand higher and higher returns.

This in turn makes the government’s problems even worse, stoking fears that Madrid could, like Ireland and Greece last year, be forced to seek help from the European Union and International Monetary Fund.

A bailout for Spain, however, would be far bigger than anything seen to date seen to date in Europe — its economy is twice that of Greece, Ireland and Portugal combined — and many fear it could possibly sink the euro.

The government aims to cut the public deficit from 11.1 percent of Gross Domestic Product in 2009, the third highest in the eurozone after Greece and Ireland, to 3.0 percent — the EU limit — by 2013 via a series of tough spending cuts and tax hikes.

Spanish public debt rose to 57.7 percent of Gross Domestic Product (GDP) at the end of September from 53.2 percent at the end of 2009.

Spain’s central and regional governments and its banks need to raise about 290 billion euros on the markets in 2011, including rolling over existing debt, raising their exposure to “funding stress,” Moody’s Investors Service warned last month.

Chinese state media on Monday also quoted Beijing’s ambassador to Madrid as saying China is willing to make “positive efforts” to help Spain with its economic recovery.

Li’s meetings this week with Prime Minister Jose Luis Rodriguez Zapatero and Finance Minister Elena Salgado will “play a key role” in financial stabilisation, Xinhua news agency quoted the ambassador, Zhu Bangzao, as saying.

Their talks will focus on expanding trade and economic cooperation and will also help “restore market confidence,” Zhu said.

Spain’s foreign ministry said the two countries will sign “a large number of business deals in key sectors …. such as banking, energy, transportation, and telecommunications” during the visit.

China has pledged to help support struggling eurozone economies.

A Chinese foreign ministry spokeswoman last month said Europe would be a “major market” for investment of Beijing’s massive foreign exchange reserves.

China has pledged to buy bonds from Greece and Portugal, but it has not yet made any concrete commitments on the size of its investment.

The Spanish economy, the EU’s fifth largest, 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.

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