China's Wang Says `Concrete Action' Taken on EU Debt

China backs the European Union’s efforts to ensure financial stability, Vice Premier Wang Qishan said today, spurring a rally in the euro.

China supports the International Monetary Fund’s measures and “has taken concrete action to help some EU members counter the sovereign-debt crisis,” Wang said at the start of the Third EU-China High-Level Economic & Trade Dialogue, a one-day forum in Beijing to discuss economic and trade relations.

The euro advanced against 14 of its 16 most-traded counterparts on speculation investments by China, which holds a record $2.65 trillion in foreign-exchange reserves, will ease Europe’s fiscal crisis and boost the allure of the region’s assets. Chinese Premier Wen Jiabao said in October that China supports a stable euro and won’t reduce European bond holdings.

“EU members have taken a number of steps to actively respond to the sovereign-debt crisis,” Wang said. “We hope these measures will quickly produce results and lead to a steady recovery of the EU economies.”
The euro yesterday fell to the lowest in two weeks against the dollar and yen on speculation some European nations will struggle to raise funds amid a slew of credit-rating and outlook changes. Greece and Ireland were rescued by their neighbors and the IMF this year, and investors now are concentrating their sights on Portugal as economies throughout the continent slash budgets to appease investors concerned by fiscal excess.

Irish Rating

“The comments would be a good Christmas present for the euro if Asian support for the EU continues into next year,” said Kurt Magnus, executive director of foreign-exchange sales at Nomura Holdings Inc. in Sydney. “There’s a lot of people looking to sell euro and go into 2011 with a core short position and there’s no way that you would be short euro,” if China continued to support the region, he said.

Moody’s Investors Service last week cut Ireland’s debt rating by five levels and put Greece on review for a possible “multi-notch” downgrade. It said Dec. 15 it may lower Spain’s creditworthiness. Standard & Poor’s is reviewing its assessments of Ireland, Portugal and Greece.

China’s economy faces “uncertainties” next year, and because of that the country is paying “great attention” to whether the EU’s sovereign-debt crisis can be controlled, “especially in the first quarter of next year, what will happen,” Commerce Minister Chen Deming said at a press briefing at today’s meeting.

Show of Support
Policy makers in the world’s fastest-growing major economy will see if the EU can improve on prevention of risks and “translate their consensuses into practice for them to step out of the crisis as soon as possible,” Chen said.

The Portuguese government said last week that China had made a “clear statement” of financial support during Finance Minister Fernando Teixeira dos Santos’s visit to Beijing.

China is willing to invest 4 billion euros ($5.3 billion) to 5 billion euros in Portuguese government debt in the first quarter of next year, Lisbon-based newspaper Jornal de Negocios reported on Dec. 16, without saying where it got the information.

It wasn’t clear if China would acquire debt on the secondary market, in government bond auctions or in a direct transaction with the Portuguese treasury, the newspaper said. China’s purchases would cover about a third of Portugal’s refinancing needs through April, Jornal said.

The EU is China’s largest trade partner and China is the EU’s second-biggest export market, with bilateral trade increasing 33.1 percent in the 11 months through November from a year earlier to $433.88 billion, China’s customs department said Dec. 10.

The EU’s trade deficit with China widened to 122.2 billion euros in the first nine months of 2010 from 97.8 billion euros a year earlier, the Union’s statistics office in Luxembourg said Dec. 17. EU exports to China increased 39 percent in the first nine months while imports from the Asian country rose 30 percent.

Other officials in attendance at today’s meeting include EU Competition Commissioner Joaquin Almunia, and EU Trade Commissioner Karel De Gucht.