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China Says It Is Not Selling Euro

The market panicked yesterday on rumors that China was selling euros due to the instability of the EU region.  China denied it. “Europe has been, and will be one of the major markets for investing China’s exchange reserves,” the State…

By Douglas A. McIntyre
Published May 27, 2010, 5:33am ET · 2 min read

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The market panicked yesterday on rumors that China was selling euros due to the instability of the EU region.  China denied it. “Europe has been, and will be one of the major markets for investing China’s exchange reserves,” the State Administration of Foreign Exchange said.  China’s statement means that a story by the FT, claiming that the People’s Republic was reviewing its holdings in Europe was wrong.Or, the Chinese may be involved in a bit of misdirection. It would not be to their benefit for it to be publicly known that they are reviewing the euro situation. Any sane holder of the currency would be doing just that since the euro has dropped from more than $1.40 at the beginning of the year to $1.22 now. The region is in a state of confusion. Even with a $1 trillion support package, there are still significant concerns that Greece, Spain, and Portugal could default on sovereign debt. The idea is not far-fetched. Deficits in the countries are still mounting, and clawing back social support costs may be nearly impossible. The people of these nations are used to decades of support for jobs, medical costs, and termination payments. The other plan to close deficits is to raise taxes, which could cut GDP growth.

China gets hurt if there is deep concern that it is selling euro assets. A public admission on China’s part would cause a huge sell-off . China would be doing the one thing that it could do to accelerate the collapse of the euro. It is not unlike the support that the People’s Republic gives the US by continuing to hold and occasionally buy treasuries while at the same time chiding America for its lack of fiscal discipline.

And, China is trapped by its own riches. It currency surplus is more than $2 trillion. It has to own some amount of debt from nations across the globe, not just to hedge for problems in one region, but also to keep its capital fully invested.

China may say one thing about Europe, but it is almost doing something else.

Douglas A. McIntyre

Contact [email protected] for any questions or corrections.

Douglas A. McIntyre

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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