ROYAL FORUM: China signs $7.5b deals with Juan Carlos' Spain


ROYAL FORUM: China signs $7.5b deals with Juan Carlos' Spain
by Darius Kadivar

China and Spain signed $7.5 billion worth of agreements on Wednesday, a welcome boostfor Spain's recession-hit economy. King Juan Carlos Greeted Chinese Vice Premier Li Keqiang at Madrid's Moncloa Palace on Wednesday. More Photos Here

Inside Story - China's influence in Europe (Al Jazeera Debate):

MADRID(AFP) – Chinese Vice Premier Li Keqiang backed Europe in its sovereign debtbattle on Wednesday, starting a three-nation tour by promising to buy moreSpanish government bonds.

Li, widelytipped to be the next premier, delivered a significant vote of confidence givenChina's world record foreign reserves of 2.648 trillion dollars (2.0 trillioneuros), much of it in euros.

On hisvisit to Spain, Germany and Britain he is supporting Europe's recovery effortsand seeking to soothe global market fears of a debt quagmire spreading from Greece and Ireland to Portugal and even Spain.

"China'ssupport of the EU's financial stabilisation measures and its help to certaincountries in coping with the sovereign debt crisis are all conducive topromoting full economic recovery and steady growth," Li said in an opinionpiece published in the German daily Sued deutsche Zeitung on Wednesday.

Prime Minister Zapatero greets Chinese Premier: 


Li openedhis tour on Tuesday by promising to buy more Spanish debt when he met Finance Minister Elena Salgado.

"Webelieve Spain, with its government and people working together, will surelyovercome current economic and fiscal difficulties," Li was quoted assaying by China's official Xinhua news agency.

China hadeven increased its buying activity amid European debt concerns, Li reportedlysaid.

"Wewill buy more depending on market conditions," he promised.

Later, ina meeting on Wednesday with Prime Minister Jose Luis Rodriguez Zapatero, he"expressed China's confidence in the Spanish economy, as shown by thecountry's investment in Spanish public debt," said a communique from theSpanish premier's office.

Spain'scentral and regional governments and its banks need to raise about 290 billioneuros in gross debt in 2011, including rolling over existing bonds that expire.

That opensthe risk of "funding stress" as rising rates make it increasinglyexpensive for the state to raise money, Moody's Investors Service warned lastmonth.

Any EU orinternational bailout for Spain would be far bigger than anything seen to datein Europe -- its economy is twice that of Greece, Ireland and Portugalcombined.

China'shelp could be important.

WhileChina's top leaders were not seeking to single-handedly resolve the debt crisis, the investment in Spanish debt madesense, said Ken Peng, a Beijing-based economist for Citigroup.

Spanishbonds were delivering high yields and "might not be a badinvestment," he added.

CreditSuisse economist in Beijing, Tao Dong, said that stabilising the economy in theEU -- the top destination for China's exports-- was in Bejing's own economic interests.

In lateafternoon trade, China's support for Spain seemed to have helped the bondmarket.

The ratedemanded by investors in return for buying Spanish debt eased significantlywith 10-year bond yields down to 5.278 percent from 5.317 percent at Tuesday'sclose.

TheSpanish risk premium -- the extra rate paid when compared to safer-bet Germanbonds -- also declined to 2.36 percentage points from 2.43 points at Tuesday'sclose and 2.49 points at the close on Monday.

Aftertheir talks, the Chinese and Spanish leaders ratified a 7.1-billion-dollar(5.2-billion-euro) deal between Spanish energy giant Repsol and China's biggestoil group Sinopec, the Spanish industry ministry said.

Under thedeal, already cleared December 28 last year by Repsol shareholders, the Spanishgroup sold 40 percent of its Brazilian affiliate to Sinopec.

Li and Zapatero also signed about 10 other privatecommercial contracts, including for the purchase of Spanish cured ham and oliveoil, and a handful of state deals.

The seniorChinese policymaker told a breakfast meeting of business leaders in Madrid onWednesday that the total value of the contracts signed was 7.5 billion dollars(5.7 billion euros).

TheSpanish government has slashed spending and says it is on track to meet itspromise to lower the public deficit from 11.1 percent of annual output in 2009to the European Union limit of 3.0 percent by 2013.

Theeconomy, the EU's fifth biggest, slumped into recession during the second halfof 2008 as the global financial meltdowncompounded the collapse of the once-booming property market.

Itemerged with tepid growth of just 0.1 percent in the first quarter of 2010 and0.2 percent in the second but then stalled with zero growth in the third. 


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by oktaby on

of this announcement is a clever move by China. Spain is in queue for scrutinization of sovereign debt and unless Caja problem & future debt issues are resolved and quickly, Euro currency will split or die. This deal scores big with Germany and France in addition to Spain's gratitude for China's magnitude:). Their banks shiver at thought of bailing out Spain and frankly, can't afford it as Spain is too big to bail out. The rich kid on the global stage, is on a shopping spree and its Yuan buying more than goods; it is shifting alliances.