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Chinese official investments influence world a lot
2012-01-04
Brief:China would continue to purchase euro-denominated government bonds.
In China, there are financial investments by the state, through bodies such as China Investment Corporation (CIC) and the State Administration of Foreign Exchange (SAFE), which looks after the country's vast foreign reserves.
 
Wen Jiabao, China's prime minister, said that the country would continue to purchase euro-denominated government bonds. Delegations have shuttled back and forth between Beijing and Athens, Lisbon and Madrid to pledge eternal friendship and see whether the Chinese might be tempted to put some money their way.
 
It is not just governments that are desperate for Chinese capital. Saab, a struggling Swedish carmaker, is trying to sell stakes to two Chinese firms to secure its future. Victor Meijers, a Dutchman who is the only foreign global partner in DeHeng Law Offices, one of China's big law firms, says that he gets several inquiries a month from struggling European firms looking for a Chinese white knight.
 
China has a stated desire to diversify away from dollar assets and the euro zone is the natural alternative. Simon Derrick, a currency analyst at BNY Mellon, an American bank, reckons that around a quarter of China's $3 trillion-plus of reserves are now in euro-denominated assets. Given the recent pace of accumulation—around $200 billion a quarter—that would suggest that $150 billion-200 billion of Chinese reserves have found their way to the euro zone since last summer.
 
Inflows on that scale would help to explain why the euro has continued to do better than many expected given the zone's sovereign-debt crisis.

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