China could continue to invest some of its enormous reserves in European government debt, its ambassador to the European Union said Thursday. "It's possible we will purchase more sovereign bonds," said Song Zhe. "We are hoping to achieve stability in European financial markets."
The EU is China's biggest trading partner, and the two make up the world's richest bilateral trade relationship, with commerce totaling $522 billion last year, over a third of which was EU exports to China.
By comparison, U.S.-China trade was $456.8 billion in 2010.
China's willingness to invest in Europe is seen as a key buffer against the risk created by the Continent's shaky public finances. "There is no doubt that peripheral Europe could benefit greatly by a strong commitment by non-European asset holders to substantially raise their net holdings of European debt," says Julian Callow, chief European economist with Barclays Capital in London.
By authorizing prominent officials like Mr. Song to speak to journalists, Beijing is advancing its interests, analysts said.
"The Chinese are worried about the euro sliding, and they also want to slow protectionism here in Brussels," said Jonathan Holslag, a research fellow with the Institute for Contemporary China Studies in Brussels. "So it's a combination of economic, commercial and political considerations."
The rare two-hour interview with Mr. Song—over a lunch of sliced cod with sour sauce, white mushroom soup and other Chinese delicacies—touched on subjects ranging from Chinese domestic changes to the war in Libya.
China, said Mr. Song, is committed to helping Europe remain stable during its debt crisis. "We want to diversify our portfolio, prevent risk and protect value in foreign exchange."
He said that "overstretched public services" had led to the debt crisis in places like Greece. Spending cuts and other austerity measures "might be an effective tool to contain the crisis," he said. "We have confidence in this euro currency."
Details of Chinese holdings of European bonds aren't public, but there is no doubt they are rising. After buying U.S. Treasurys in the past, "we are now trying to spread ourselves, and EU sovereign bonds is one of those choices," said Mr. Song.
With more than $3 trillion in foreign-exchange reserves, China is looking at other types of investments, too. In Europe, said Mr. Song, that means "high-tech products and manufacturing businesses." He described his country as "new in investment and international financing," and, using a common Chinese phrase, said, "We'll proceed carefully and cross the river by touching the stones."
He decried the EU's many antidumping tariffs, designed to punish goods sold below cost, on Chinese imports, as ludicrous. "For 17 years, there have been antidumping duties of 50% on imported bicycles," he said. "How can makers sell their bicycles at half cost for 17 years?"
Mr. Song criticized EU trade protectionism. "Chinese products won the market in Europe because of their merits, their competitiveness," he said. "Labor cost is still at a very low level, only 5% of the cost in Europe." Chinese business leaders "are very occupied with market demand in Europe," he said.
China isn't linking its purchase of Europe bonds and resolving trade disputes, he said. "We buy [EU debt] because of the economic profit initiative and the security of our foreign-exchange holdings," he said. "The trade barriers are simply WTO incompatible."
On Libya, China supports an immediate cease-fire, the ambassador said.
He dismissed suggestions that China was ripe for a revolution similar to those in Egypt and Libya. "We encourage officials to talk to people to help them solve their problems," he said.
Prosperity will help, too, he said. Repeating a 2011 growth forecast by the International Monetary Fund of 4.5% for the world and 9.6% for China, Mr. Song said the Chinese economy "will be driven by domestic demand. There will be a diversification of our investment portfolio."
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