China has pledged more help for the deteriorating eurozone crisis, with Premier Wen Jiabao promising to purchase more EU government bonds.
Speaking at a joint press conference with German Chancellor Angela Merkel at the end of a two-day official visit to Beijing, the Premier said China remains confident in the euro and will continue to buy European bonds to help debt-ridden European countries ride out the crisis.
However, he said it is important that European leaders “strike a balance” between a fiscal tightening and economic stimulus.
He told reporters:
Europe’s debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly, I am also worried.Wen’s comments mark a shift in Chinese policy, said the Telegraph, which had previously advocated austerity across the eurozone.
Calling for solidarity within the eurozone, Wen said “China is willing” to help but on the condition of “fully evaluating the risks” present in eurozone markets.
He added that his meeting with Merkel assuaged his concerns slightly, but warned that no quick resolution for the crisis is in sight.
The main worries are two-fold: first is whether Greece will leave the eurozone. The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and the other countries have the determination for reform.Merkel, whose visit scored billions of Chinese investment in Germany, said that “big progress” has been made towards arresting the crisis though cautioned that the end is nowhere in sight.
Addressing China’s concerns, she said eurozone debt remains a “safe investment” and added that European countries have the “political will” to revive market confidence in the euro.
Despite the assurances, Simon Derrick from BNY Mellon thinks “China is no longer in the market to buy bonds.” Derrick said China’s foreign reserves have fall by $100 billion from its February peak of $3.31 trillion.
Furthermore, Morgan Stanley said there are early signs of incipient capital flight from China. According to the bank, the yuan has fallen over 1 percent since April and the “risk for Europe is that China could become a net seller of European bonds if forced to run down reserves to shore up the yuan.”
Courtesy Economy Watch, (EconMatters author archive here)
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