China Races To A Bailout Of PIIGS

China says it will buy as much as $7.9 billion of Spain’s sovereign debt. That is a large investment given Spain’s modest $1.3 trillion GDP. China can spare that money. Its foreign reserves are well over $2 trillion. Spain needs the money. Its current deficits and national debt are not sustainable.

China has made large investments in the debt of Portugal and Greece. The big Asian nation may single-handedly save the financial fortunes of Portugal, Ireland, Italy, Greece and Spain.

It is unclear why China is so interested in the region. It is also fascinating that China has taken a role which was recently held by the US and IMF. China has become the sovereign debt buyer of last resort. Not even the European Central Bank is willing to be so helpful

China may believe that the distressed debt of EU nations is a risky but potentially very rewarding investment. The People’s Republic may also be concerned that if there is a partial financial collapse of Europe it will lose sales in one of its most important export markets.

China’s intentions may also be more sinister. It could want to have the kind of alliances in Europe that the US has had for decades. If so, it is another example of how China has begun to push America aside on the international stage.

Douglas A. McIntyre