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China's Wen offers to buy Greek debt

Monday, October 4, 2010
By Ingrid Melander and Harry Papachristou, Reuters


ATHENS -- China offered on Saturday to buy Greek government bonds when Athens resumes issuing, in a show of support for the country whose debt burden pushed the eurozone into crisis and required an international bailout.

Premier Wen Jiabao made the offer at the start of a two-day visit to Greece, his first stop on a tour of Europe, and also said he wanted to boost shipping and trade ties with Athens, underscoring Beijing's use of economic strength to win friends.

“With its foreign exchange reserve, China has already bought and is holding Greek bonds and will keep a positive stance in participating and buying bonds that Greece will issue,” Wen said, speaking through an interpreter.

“China will undertake a great effort to support eurozone countries and Greece to overcome the crisis.”

Wen and his Greek counterpart George Papandreou said in a statement the world's nations need to coordinate their economic policies for global recovery to find a sure footing.

“The global economy shows signs of gradual recovery but many uncertainties remain,” the two leaders said in the statement, issued on Saturday by Papandreou's office after the two men met in Athens.

In addition to seeing economic opportunities in Greece, China may calculate its support of a struggling European country will help deflect international criticism of its trade policies and its refusal to let its yuan currency appreciate sharply.

Wen did not specify how much Greek debt China would be willing to buy or which Chinese entities would buy the bonds.

Chinese state entities have been generally conservative about investing in foreign financial markets and the Chinese government faces domestic political criticism over losses incurred by these entities during the global financial crisis.

High Borrowing Costs

A senior Greek government official said Wen made clear his offer concerned buying bonds only when the country returned to markets.

Greece, which is currently funded through a 110 billion euro (US$150 billion) EU/IMF bailout, is only issuing short-term T-bills for the time being.

Since the true scale of its debt burden emerged late last year, investors have shunned its bonds. The yield they demand to hold 10-year Greek debt has shot up to 10 percent, compared with just 2.3 percent for similar bonds from the eurozone's biggest economy Germany, making it too expensive for Greece to seek long-term funding in international markets.

It has said it wants to return to markets sometime next year to sell longer-term debt.

China, at loggerheads with the United States over the yuan and likely to face similar complaints during this European tour, emphasized its willingness to cooperate with the 27-nation EU on financial issues.

“China is prepared, hand in hand with the EU, as passengers in the same boat, to strengthen cooperation ... to confront the financial crisis,” Wen said. “I believe that we can undertake a genuine effort to promote the reform of the international financial system and strengthen its supervision,” he said.

Neither Wen nor Greek Prime Minister George Papandreou mentioned the Chinese currency at the news conference.

Shipping, Trade, Exports

Wen said China wanted to boost cooperation with Greece — which faces its worst recession in decades as it struggles with its debt — on all fronts, including by setting up a shipping fund and doubling bilateral trade to US$8 billion by 2015.

“China will set up a special Greek-Chinese shipping development fund for Greek ship-owners on which it will invest, in an initial phase, US$5 billion,” Wen told the news conference. “The aim is to offer Greek ship-owners a basket of financial support to buy Chinese-made vessels.”

Greece and China pledged to stimulate investment in a memorandum of understanding and private companies signed a dozen deals in areas like shipping, construction and tourism.

With the global economic crisis and competition with other Balkan countries increasing, foreign direct investment in Greece fell from 6.9 billion euros in 2006 to 4.5 billion in 2009, according to Investment Ministry figures.

Chinese investment represents a very minor proportion of this, excluding a 35-year concession deal China's Cosco signed in 2008 to turn the port of Piraeus into a regional hub for a guaranteed amount of 3.4 billion euros, according to port authority figures.

The investment memorandum does not target specific investment volumes, an official close to Investment Minister Harris Pamboukis said ahead of Wen's visit.

“We want to build this strategic partnership with China,” the investment ministry official said. “The purpose is not a signature on something big.”

Wen will address the Greek parliament on Sunday and leave early on Monday for Brussels, where he will attend an EU-China summit before going on to Germany, Italy and Turkey.

Clinching business deals with countries such as China and Qatar would help boost confidence among Greek consumers and businesses, economic analysts said.

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