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China vows to help EU beat debt crisis

China vows to help EU beat debt crisis
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First Published: Wed, Jan 05 2011. 09 44 PM IST
Updated: Wed, Jan 05 2011. 09 44 PM IST
Madrid: Chinese vice-premier Li Keqiang backed Europe in its sovereign debt battle on Wednesday, starting a three-nation tour by promising to buy more Spanish government bonds.
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 (Rs120 trillion), much of it in euros.
On his visit to Spain, Germany and Britain he is supporting 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 stabilization 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 the 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.
China had even increased its buying activity amid European debt concerns, Li reportedly said.
“We will buy more depending on market conditions,” he promised.
Later, in a meeting on Wednesday with Prime Minister Jose Luis Rodriguez Zapatero, he “expressed China’s confidence in the Spanish economy, as shown by the country’s investment in Spanish public debt,” said a communique from the Spanish premier’s office.
Spain’s central and regional governments and its banks need to raise about €290 billion 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.
After their meeting, the Chinese and Spanish leaders ratified a $7.1-billion deal between Spanish energy giant Repsol and China’s biggest oil group Sinopec, the Spanish industry ministry said.
Under the deal, already cleared 28 December last year by Repsol shareholders, the Spanish group sold 40% of its Brazilian affiliate to Sinopec.
Li and Zapatero also signed about 10 other private commercial contracts, including for the purchase of Spanish cured ham and olive oil, and a handful of state deals.
The senior Chinese policymaker told a breakfast meeting of business leaders in Madrid on Wednesday that the total value of the contracts signed was $7.5 billion (€5.7 billion).
The Spanish government has slashed spending and says it is on track to meet its promise to lower the public deficit from 11.1% of annual output in 2009 to the European Union limit of 3% 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% in the first quarter of 2010 and 0.2% in the second but then stalled with zero growth in the third.
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First Published: Wed, Jan 05 2011. 09 44 PM IST
More Topics: China | EU | Spain | Economy | Li Keqiang |