Is it wise for China to buy Europe debt?

China's Premier Wen Jiabao and Greek Prime Minister George Papandreou stand in front of the Parthenon Temple while visiting the ancient Acropolis in Athens.


STEVE CHIOTAKIS: Chinese Premier Wen Jiabao began a week-long tour of Europe. His first stop? Greece, where the premier promised China would continue to buy Greek bonds. Now that's a morale-booster for a country suffering under a mountain of debt. Marketplace China Bureau Chief Rob Schmitz is with us from Shanghai with more. Good morning, Rob.

ROB SCHMITZ: Good morning, Steve.

CHIOTAKIS: So there are signs that China's been buying up more European debt and shedding some of its U.S. debt as well. What's happening here?

SCHMITZ: Well, the European Union is China's biggest export market. But, as we've seen, the economies of Greece, Spain, and Italy -- just to name a few -- are in a fiscal crisis right now. They need capital. China's willing to provide that capital because China knows that without it, these countries are going to run out of the money. And if that happens, they won't be able to buy Chinese goods. If you look at the deal Wen made in Greece, it kind of gives you an indication of where China's intentions lie.

CHIOTAKIS: Now I read, Rob, that Wen announced the creation of a $5 billion fund to help Greek shipping companies.

SCHMITZ: Right. But Greece has to use that money to buy Chinese ships. So for Greece, this means more ships. For China, this means more jobs and that's exactly what China needs.

CHIOTAKIS: Is it wise, Rob, for China to be buying the debt of countries like Greece that are teetering on the brink of bankruptcy?

SCHMITZ: That's a great question. China's relatively new to this position as the world's bank, and some economists think China's inexperience may lead to some problems. But it's clear that Greece and the other debt-ridden EU countries are thrilled by Wen's visit. Last year when Wen visited Europe, someone threw a shoe at him. It's probably a good bet European leaders will do their best to make sure that doesn't happen again.

CHIOTAKIS: All right. Marketplace's China bureau chief Rob Schmitz joining us from Shanghai. Rob, thanks.

SCHMITZ: My pleasure.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.
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Jim B, Like any other overspent entities, Greece has to cut down budget spending and pay its debts. While China as a low to medium income country has a lot of surplus from investment from overseas. China has to give back the surplus if those investments decide to get out from China. So it just uses the extra US dollar surplus as good as possible for the moment by buying US T Bill or Greek Bonds. If Greece is successful in shaping its book, it won't default. If Greece, US or other investments default, and probably China will also default by refusing to convert from Yuan to other currencies because it doesn't have the source to pay. The case of China is overblown. It is just one of emerging countries with a lot and lot of poor citizens needed some employment without any social securitiy/welfare. Except China has been doing quite well in the past 30 years. Other countries do not have to buy Chinese exports by applying import duties to Chinese products so other imports can be cheaper (putting aside WTO rules) but price increase and inflation will happen.

@ Jim, nothing really. The only thing is that the whole world economy will tank. and then everybody will go to hell. Really nothing big. Our country is heading to that path anyway so why not let the whole world go down with us.

I say we let China loan money to as many countries as possible and then we all default. Seriously, what can China do? Declare war on the world? I am not kidding here, please, someone explain to me what will happen if we all default on China.

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