China is ready to take “organized action,” in particular, to continue buying up the bonds of those European countries that were hardest hit by the crisis.
For China, the EU is a major market for Chinese goods. In 2009, the volume of trade between the parties amounted to $429 billion. During the first 11 months of this year it has already exceeded $433.9 billion, which is 30% higher than last year.
China had a very sensitive reaction to the Greek issues. “When Greece has problems, China is ready to provide any assistance possible,” said Prime Minister Wen Jiabao at a joint press conference with his Greek counterpart George Papandreou.
According to Wen Jiabao, Greece is the most “trustworthy friend of China in the European Union.” The exact numbers of the European countries’ debt purchased by the Chinese are not disclosed. However, the authorities of Portugal and Greece talked about significant investments of this kind.
It is worth noting that Greek ship owners control the largest merchant fleet in the world whose tonnage exceeds 20% of the world’s volume. The fact that China supplies the bulk of their goods by sea is also well known. The Chinese government intends to establish a special fund of 6 billion euros for the “aid” to the Greek shipping companies.
COSCO is the largest freight carrier in China, and the second largest freight carrier in the world. In 2009, for 3.5 billion euros the Chinese company was provided a concession period of 35 years for some of the port facilities of Greek Piraeus, where it is building two container terminals.
In Greece, the growing presence of China is one of the most pressing and debated topics. The local population has negative feelings about it, which led to protests, which, incidentally, the Greek government has not paid much attention to.
Apparently, Beijing links the support for debt-laden European countries with the transfer of the most valuable (in terms of expansionary economic policies) assets of these countries to China. First of all it is strategic infrastructure.
A week earlier, Finance Minister Fernando Teixeira Portugal dos Santos talked about China’s willingness to take part of the country’s debt and increase investment in trade and economy. According to unofficial information, China is willing to buy government bonds in Portugal in the amount of 5.4 billion euros.
China is also the largest holder of U.S. treasury bonds. In October, China bought U.S. debt at the amount of $23.3 billion. As of the end of October, U.S. debt to China was at $906.8 billion.
Beijing is interested in diversifying its huge foreign exchange reserves that have reached $2.5 trillion by mid-year. This year, Beijing tripled the size of investments in government bonds of South Korea, which already amounted to 5.15 trillion Korean won ($4.6 billion).
European bonds are of interest to the Chinese for purely financial reasons. In addition, the yield on risky bonds of crisis-stricken European countries is above average, which allows for quite significant interest profits.