01/13/2011, 00.00
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Asia to the rescue in Europe’s time of crisis

China and Japan are buying European bonds to help EU nations in difficulty. This should stabilise the euro and increase global cooperation.

Beijing (AsiaNews/Agencies) – China and Japan are buying Eurobonds to prop up EU member states in difficulty. Chinese Deputy Premier Li Keqiang, who voiced support for Europe during his tour of Spain last week, expressed confidence in that country’s financial system. At the end of 2010, China held 1.838 trillion in European bonds after buying 128 billion in the last quarter of the year with the possibility of investing an additional 10 billion a month.

Still China remains cautious. “We will over the medium term continue to diversify our FX reserves, but as reserves increase, US assets will still form the principal direction for our investments," said Zhang Ming, an economist at the Chinese Academy of Social Sciences, a top government think-tank in Beijing. “This is the only feasible option,” he said, because “There are still too many risks in Europe."

China in fact plans to buy EU-backed bonds rather than those of the most indebted countries. What is more, for example, the 6 billion € of Spanish debt that China has promised to buy, according to the Spanish media, would amount to a mere 0.27 percent of China's total reserves.

According to unofficial estimates, China already holds more than 7 per cent of the 8.8 trillion € in outstanding euro zone public debt.

On Tuesday, Japanese Finance Minister Yoshihiko Noda said that Japan would buy a large amount of joint European bonds (more than 20 per cent) issued by euro zone authorities to raise funds to assist Ireland. These bonds are backed by EU guarantees.

The European Union has been hard-pressed to overcome on its own the sovereign debt crisis of some of its members. So far, the debt emergency has mauled Greece and Ireland, and threatens Portugal and even Spain.

Experts note however that China and Japan are not buying European bonds out of altruistic feelings. Not only do they gain political and economic kudos, but they also boost their exports. The European Union is in fact China’s main trading partner.

In China’s case, investments in Europe are also effective ways of circumventing protectionist barriers placed against Chinese exports, which the EU sees as benefitting from government subsidies and funding.

Beijing also hopes to get the EU to lift its weapons ban imposed after the June 1989 Tiananmen Square massacre.

For Japan, buying European bonds is a way to counter China’s gradual invasion of world financial markets and limit its influence.  Other major Asian central banks, like those of South Korea and Taiwan, which have reserves of about US$ 380 billion and US$ 290 billion respectively, may also find themselves inclined to help out Europe, if only to check China's influence.

In any case, experts believe that the outcome will be positive because it will help EU stability, give investors confidence and start a new phase of greater global financial cooperation.

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