Beijing Buys More EU Debt

BEIJING—China has been increasing its holdings of European Union countries' debt, including Spanish government debt, since the outbreak of the European sovereign debt crisis, Chinese Vice Commerce Minister Gao Hucheng said in a statement.

China's latest comments of reassurance for Spain and other European countries amid the euro-zone crisis come as political and corporate leaders increasingly see China as a source of capital. China's foreign-exchange reserves are by far the world's largest, totaling $2.648 trillion at the end of September.

View Full Image

Associated Press

Spain's Prime Minister Zapatero applauds as Zheng Zhijie, deputy governor of China Development Bank, left, concludes a deal with Francisco Gonzalez of BBVA bank in Madrid this week.

China maintains confidence in European and Spanish financial markets and believes they will overcome the current crisis, Mr. Gao said in the statement on the Ministry of Commerce's website Thursday.

"We will continue to buy debt and work together with Spain," said Mr. Gao, who is accompanying Chinese Vice Premier Li Keqiang on a visit to Spain and other European countries.

The exact amount of bonds China buys "depends on the timing and volume of issuances by the Spanish government, as well as the bonds' prices in the primary and secondary markets," Mr. Gao said.

Spanish daily El Pais on Thursday cited Spanish government sources as saying China has committed to buy about €6 billion ($7.89 billion) worth of Spanish sovereign debt. The report couldn't be immediately confirmed.

View Full Image

Reuters

. Spanish energy company Repsol, below, will get an investment from China for its Brazilian operations.

People's Bank of China Vice Governor Yi Gang, also in Spain, said China is willing to discuss with Europe the diversification of international reserve currencies, the state-run Xinhua News Agency reported.

It is also willing to discuss with Europe the formation of a stable reserve currency system in which the supply and total quantity of reserve currency are orderly and controllable, Mr. Yi said. The report didn't elaborate on the comment. China is keen to diversify more of its foreign-exchange reserves away from U.S. dollar-denominated assets.

"Reserve managers around the world are looking to buy assets in currencies that are new to them, like the South Korean won and the Australian dollar," said Neil Mellor, a currencies analyst at Bank of New York Mellon in London. "The problem is that there are very few markets deep enough to take the amounts that China wants to dump."

Mr. Yi reiterated that China will adopt a "prudent" monetary policy to allow China's monetary conditions to return to normal levels, Xinhua said. China will also continue to improve the yuan's exchange-rate formation mechanism and will steadily promote market-oriented interest rate overhauls, he said.

Among key economic issues currently are how China can use macroeconomic policies to address inflationary pressures, and unconventional monetary policy measures adopted by the European Central Bank, Mr. Yi said.

The PBOC official added that Chinese and European financial institutions can strengthen cooperation in areas including increasing capital strength and improving the risk-sharing system, and should explore developing financial instruments and hedging devices that meet the needs of the Chinese and European markets, Xinhua reported.

—Aaron Back in Beijing, Katie Martin in London and Jean Yung in Madrid contributed to this article.

xinhua news agency, china development bank, foreign exchange reserves, european union countries, bbva bank, mr gao, reserve currencies, currency system, reserve currency, brazilian operations, chinese vice, li keqiang, bank of china, vice governor, source of capital, commerce minister, spanish government, secondary markets, sovereign debt, deputy governor
qtdz
Online.wsj.com