China Invests in Europe Bailout Fund

Good news for Europe as China decides to invest in the region’s bailout funds and maintain its holdings of euro assets. As a result, currency gains have already become apparent, while Asian stocks also increase thanks to a more optimistic outlook.

“China will always adhere to the principle of holding assets of EU sovereign debt,” said Zhou Xiaochuan, Governor of People’s Bank of China. “We would participate in resolving the euro crisis,” he said.

The news may deter European finance ministers from their continuous pressure on Greece for budget cuts, as a second bailout is in the making. China’s risk is supporting the economy of its primary export market as global economy continues to hinder Chinese growth in other regions.

“Wen and Zhou are giving the best support China can offer now, which is to send out positive messages such as promising not to cut euro assets and to buy European bonds to help bolster market confidence,” Shen Jianguang of Mizuho Securities Asia said. “How much and when China will buy will depends on its foreign-exchange investment strategy- when they find the pricing and exchange rate favorable.”

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