Chinese Vice Premier Li Keqiang vowed to buy more of Spain’s government debt on a three-day visit to the country, delivering a significant vote of confidence in the battered economy.
The visit came as Spain battled market concerns that it may need an Irish or Greek-style international rescue because of a debt refinancing crunch this year.
“We believe Spain, with its government and people working together, will surely overcome current economic and fiscal difficulties,” Li reportedly told Spanish Finance Minister Elena Salgado after his arrival.
Li, who is tipped to be China’s next premier, is embarking on a European tour that will also include Britain and Germany, at a point when markets fear further debt crises in Portugal and Spain.
China’s role in stabilising the crisis could be significant, in part because it is the world’s largest holder of foreign reserves with $2.648 trillion at the end of September.
China was a long-term and responsible player in the Spanish government bonds market and had not reduced its holdings, Li was quoted as saying by China’s official news agency Xinhua.
China had even increased its buying activities amid European debt concerns, he said.
“We will buy more depending on market conditions,” the agency quoted him as saying.
Separately, in an opinion piece in Germany’s Sueddeutsche Zeitung daily, Li said: “China’s support of the EU’s financial stabilisation measures and its help to certain countries in coping with the sovereign debt crisis are all conducive to promoting full economic recovery and steady growth.”
Spain’s central and regional governments and its banks need to raise about 290 billion euros in 2011, including rolling over existing debt, opening the risk of “funding stress,” Moody’s Investors Service warned last month.
Any bailout for Spain would be far bigger than anything seen to date in Europe – its economy is twice that of Greece, Ireland and Portugal combined – and many fear it could force a re-think of the euro.
Spanish public debt rose to 57.7 per cent of gross domestic product at the end of September from 53.2 per cent at the end of 2009.
Li noted measures taken by the Spanish government to fight the financial crisis so as to overcome its problems and lay the foundation for solid long-term economic growth.
“We believe Spain, with its government and people working together, will surely overcome current economic and fiscal difficulties,” he said.
The senior policymaker reportedly suggested that China and Spain further expand cooperation on trade, investment and new energy as a way of fighting the global financial crisis and achieving common development.
Salgado briefed Li on Spain’s economic conditions, saying Madrid had taken successful measures to cut fiscal deficits.
The Socialist government has slashed spending and promised to lower the public deficit from 11.1 per cent of output in 2009 to 9.3 per cent in 2010, and six per cent in 2011.
It has vowed further to reduce the deficit to below the three per cent European Union limit by 2013. Spain’s premier said on Tuesday the country had beaten its deficit-cutting target for 2010 and would meet this year’s goal too.
In her talks with Li, Spain’s finance minister said Chinese investors played an important role in stabilising financial markets and suggested the two countries join in developing markets in Latin America.
The Spanish economy, the EU’s fifth biggest, slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of the once-booming property market.
It emerged with tepid growth of just 0.1 per cent in the first quarter of 2010 and 0.2 per cent in the second but then stalled with zero growth in the third.