China affirms EU is key market

09:13, May 28, 2010      

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China, the world's largest holder of foreign exchange reserves, denied Thursday a media report saying it was reviewing its holdings of eurozone debt and the report was without foundation.

The Financial Times earlier said China was reviewing its eurozone debt holdings in view of the accelerating crisis in Europe, saying officials from the State Administration of Foreign Exchange (SAFE) had met foreign bankers on the issue.

"The report is baseless," SAFE responded on its website. "China's foreign exchange reserves (agency), as a responsible long-term investor, has always held a diversified investment strategy.

"The European market was and is one of the most important investment markets for (China's) foreign exchange reserves and will remain so in the future."

The euro rallied shortly afterwards, also buoyed by the pre-weekend short covering.

"The China comments downplaying the alleged change in the diversification policy are reassuring ... and that has helped the euro rise," Lee Hardman, currency analyst at BTM-UFJ, told Reuters.

Meanwhile, the president of China Investment Corp (CIC), the nation's $300-billion sovereign wealth fund, said China was more concerned about long-term trends, not short-term market fluctuations.

"Short-term fluctuations will not have a serious effect on us," Gao Xiqing said, adding they were keeping a close eye on the eurozone crisis though.

During his 6-day visit to China, the president of the European Parliament expounded the challenge that Europe is faced with amid mounting risks of a debt crisis lurking in many European countries.

"The EU needs more community decisions. This time, the EU's reaction was not far enough. That is because we need to balance each member state's interests. It is actually a crisis because of the lack of trust," Jerzy Buzek told reporters Thursday in Beijing.

However, Buzek said Europe believes that, "with the joint efforts of the international community, the eurozone will definitely overcome the difficulties and maintain the stable and healthy development of the Eu-ropean financial market."

"We will defend the euro. We want it to be a firm and reliable currency. It is also in line with the Chineseexpectation," Buzek noted.

Even so, Hardman still warned actions rather than words are needed to calm investors. "If the European debt crisis keeps rising, there will be less attraction for China to diversify from dollars into euros."

Zhang Wen, agencies contributed to the story

Source: Global Times


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