China Holds €25 Billion In Spanish Debt, Will Continue To Purchase Bonds, To Take Part In Cajas Restructuring

Tyler Durden's picture

And so we get the latest confirmation that China is now very invested in the Euro, ostensibly at the expense of the US Dollar. According to the Spanish government, China already holds €25 billion in Spanish debt, which explains where Chinese foreign buying interest has gone (most certainly not to US Treasurys) in 2011 (certainly not toward purchasing US Debt, where Chinese holdings have barely moved recently). Additionally, China, as Spain's soon to be largest creditor, has said it will help fund a restructuring of the Cajas debt: after all there is nothing better than consensual pre-petition arrangement between creditor and insolvent debtor.

From Reuters:

"China has shown itself to be a very good friend to Spain as we've confronted the difficulties of the financial crisis, which fortunately are being solved," Spanish Prime Minister Jose Luis Rodriguez Zapatero told Spanish radio stations from Bejing.

The Spanish source told Reuters that Chinese Premier Wen Jiabao did not mention any specific investment amounts at the bilateral meeting on Tuesday.

China holds 12 percent of Spanish sovereign debt that is in foreign hands, the source said.

Spain's borrowing costs have soared since early last year on investor concern that it might follow other euro zone periphery countries down the road to a bailout.


But in recent weeks it has decoupled from Portugal, which has asked for European financial aid, and the risk premium on Spanish bonds compared with German benchmark debt has narrowed. On Tuesday it stood at 172 basis points, its narrowest level since early November.

Zapatero is on a three-day visit to China and Singapore where he has meetings scheduled with Chinese Vice Premier Li Keqiang and President Hu Jintao.

He will meet with bankers and fund managers in Singapore on Wednesday to show them data on Spain's economy and finances to argue the case for investing in Spain .

Spain's weak savings banks, crippled by property loans that soured, are seeking investors as the government has forced them to recapitalise and tried to fight off the spectre of a big state bailout for the financial sector.

Of course, since there is no such thing as a free lunch, Spain is now prepared to sell Ibiza to Beijing for 75% off. And far more importantly, with Chinese indirect investments all over Europe now, it explains why the Chinese government is far more set on seeing a strong EUR than a dollar, which even the PBoC appears to have given up on. Lastly, China is absolutely making a political statement with the disclosure of its Spanish bond purchases, making it all too clear that surplus economies have alternative to the USD when recycling trade dollars.

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AN0NYM0US's picture

Sara Eisen on Bloomberg Radio this morning quoting Chinese central bank adviser Yu Yongding

 "China's holding of US dollars like a fridge full of rotten food"

blindfaith's picture

The Chinese Government can be so cute with quotables.  Lets see how they are at saving face when the Euro rolls over with 9 out of 10 insolvent and bankrupt nations doing the Irish/Iceland 'screw you mombo'.

It is going to be wall paper for some communist's leaders bathroom or jail cell.

Gordon Freeman's picture

I was thinking the same thing.  Do the "usual suspects" here at ZH think buying stinking, gangrenous caja paper (papel?) is such an improvement on UST?  Dumb...

Raynja's picture

china isn't looking at the monetary return, they want to know that europe will stay out of any conflict between us and china.

Forgiven's picture



Best, most astute geopolitical observation yet.

Harlequin001's picture

Come on guys, China is creating money for free from thin air to buy maybe 10 cents on the dollar in a sovereign default, worst case.

Even if they only get 1 cent on the dollar that's still a fuckin good deal.

If your Chinese, that is.

Everyone else is enslaved to China through a very real debt of very unreal money.

We need a gold standard again, fast.

Urban Redneck's picture

They already have the USD stake required for currency flotation, the don't have enough EUR yet.  They want a seat at the big kids' table when the global currency re-balancing happens, they don't get that with a primarily USD peg and non-convertibility. 

Popo's picture

So why are the Chinese buying our rotten food?   Maybe they can't stop?

knukles's picture

Get tem to a American Rotten Food Addiction Anonomyous meeting.  They'll stop when they're good and ready to stop.

sethstorm's picture

Holding Chinese anything is like a fridge full of toxic waste.

Forgiven's picture

So this begs the question: what important western technology will Spain sell/pawn to the chinese?

vast-dom's picture

China has moved past this tech bartering with US tech -- they can get it directly/indirectly from Europe. And Europe would rather get in bed with China, even despite US military might. This is the reality at least.  

blindfaith's picture

I don't know about that, the Europeans have made it very clear lately their decreasing interest in foreign faces of any kind.

As for our military, nothing would please me more than closing our bases in Europe and many other places including Korea.  Let them stand on their own two feet or ( damn it ) fall on their faces...I am tired of tax dollars propping up nations for 60 years ( via military presence and personnel spending)  and we have zip to show for it.  Frankly, we need the funds right here at home.

ricksventures's picture

You really dont get the military industrial complex of USA do you ? Its an investment, the more bases there are, the more money the complex makes, the complex makes money from US taxpayers and it sells weapons around the world


nobody is asking u what pleases u and nobody is going to....teaparty has no power, its run by retards (and supported by demographically declining white males), everyone else (dying repubs and soon to be the only party, dems) love the mil complex.

Everybody has a price, every senator and congressman is for sale, u have no say and u will not rise up and load your glock anyways, since u dont have guts for civil war is still too comfy....gallon for 5bucks is still too comfy, wait for 10 to 20 bucks a gallon


As far as Spain, I have been to Barcelona recently and it was full of Huawei (Chinese telcom firm), they own that city, chinese own a LOT of money making biznises there (restaurants, shops, nite clubs etc.) Spanish are wuzziez, they are all soft and unemployed and spend time studying crap like "literature in africa"...


sethstorm's picture

As far as Spain, I have been to Barcelona recently and it was full of Huawei (Chinese telcom firm), they own that city, chinese own a LOT of money making biznises there (restaurants, shops, nite clubs etc.) Spanish are wuzziez, they are all soft and unemployed and spend time studying crap like "literature in africa"...

That can be changed.  Just find a few who were in the pocket of the Chinese, and use any means to make sure the China support is gone.  Replace with someone within the EU that is not a Chinese front.

Global Hunter's picture

Beachfront property, resorts, teams and players.  I can't think of too much else, maybe throw in Cordoba.

Cash_is_Trash's picture

Olive oil, wine and bullfight ringside tickets.

China already has the AEGIS combat system for their destroyers.

Herman Strandschnecke's picture

'Olive oil, wine and bullfight ringside tickets..

and Oranges. Nuclear waste to the U.S.A and Crude oil too, according to a quick search on google.

But I agree; the reason for the Chinese 'investment' is to gain a foothold in EU policy.

sethstorm's picture

The problem is if it backfires on them, and China rightfully gets kicked out.  Then gets locked out.


Harlequin001's picture

China is doing this because it's free money. They simply create new money from nothing, go buy a US or Euro bond, use it as collateral in any currency they choose and buy defaulting debt with a bigger premium.

Even if it defaults they win because they created the money from nothing in the first place, and when the world says devalue the Yuan they will hold all these investments in every other currency. It will be too late.

Who cares, they can't lose.

Our politicians need to stop this now before we end up perpetually indebted to China by borrowing non existent money.

It is treason, pure and simple...

falak pema's picture

Dilma of Brazil is doing or will do the same in Potugal. The BRIC countries are preparing their strategy to dump USD as reserve one day as it plunges...EU as a partner for their products seems a better alternative as the US will plunge as the dollar falls. It trade balance makes it a problem for future chinese investments/exports.

Alcoholic Native American's picture

Shouldn't Ben punch a few keys and purchase some as well?

DoctoRx's picture

Vendor financing.  Spain will import yet more Chinese goods.  

topcallingtroll's picture

Let the europeans be the.bagmen for mercantilists. No problem.

Devaluation is always and everywhere a monetary phenomenon to deal with debt and recession in the simplest way possible.

dan10400's picture

For China, a Spanish default will be a warmup before the upcoming US default.

sethstorm's picture

The US will not be as friendly to the Chinese at the interpersonal level.


Zero Govt's picture

Chinese Govt holding Spanish debt as well as US debt... being 'double dumb' is a Govt speciality!!

...let's see how many Cents on the Dollar they get back, 20c would be doing pretty good

Harlequin001's picture

20 cents would be fucking marvelous if they created the money from nothing in the first place.

Would that I could do that, I would happily take 1 cent on every free dollar I could create.

It's not the Chinese being 'double dumb'...

squexx's picture

Holding toxic US and Euro debt. The Chinese are either suicidely stupid or are going to own lots of great overseas real estate!

PY-129-20's picture

At least, you can buy an excuse for your failures. So if things should fall apart, you can still blame foreigners.

Ahmeexnal's picture

Just like the germans blamed the tribe??

sethstorm's picture

...which will be seized by an anti-China government due to some error in the paperwork.  Not only do the countries get the money, said countries get to flip the bird at a despotic regime called China. 

Hannibal's picture


Daedalus's picture

This is a pretty cheap way for the Chinese to purchase voting rights on the ECB council, European Parliament, a level of influence on the European Commission and so on through to all European policy.

Just think about it: "If you don't arrest [insert dissident's name here] then we'll sell a load of Spanish debt, causing a rise in yields, fear of default, and a collapse in the Euro and the European banking system." 

Seems a persuasive argument to me...



Harlequin001's picture

Do you think they didn't buy US banks back in '08?

sangell's picture

Ah, for the days when China only had Albania as a client state in Europe. Propping up Spain might be far more expensive but Spain is a veto wielding member in good standing of the EU. Turn it into a Chinese satrapy able to block any European trade, foreign or economic policy makes it a relatively cheap buy.

Dick Darlington's picture

Classical sign that Spain is really deep in the shit they claim they're not.

Weimar Ben Bernanke's picture

China is trying to prop up the Euro because one reason only. They want Europe to lift the weapons embargo. China wants to get their hands on the lastest western military technology. It would be a big boost fot the Chinses military.China could use the debt crisis as a bargining chip on the EU to lift the ban.It would be interesting to see how Washington will repond if the weapons embargo is lifted. However I do not think even China can save th euro. There is only two options for the EU in order to end this crisis:


  a. A breakup of the Eurozone in 2012-2013
b. An agreement on debt restructuring, bank haircuts and fiscal consolidation. New rules will be drawn out and fiscal union will be the final outcome. EU states will realize that in order to be part of a currency union, fiscal sovereignty will have to be sacrificed. To some extent, Federalization may be the route that the EU takes in its evolution to become an economically and politically linked union.

The latter is the ideal outcome for EU, but it is also most difficult to achieve. It requires nations to set aside their sovereignty and their cultural differences. Politically, I see an attempt by EU-philes to push for some sort of fiscal consolidation of the Eurozone with autonomy in Brussels. However, I can also see Euro-skeptics and nationalists push back citing sovereignty and democracy. This will be further hampered by historical animosity, and ethnic diversity. As such, I view the probability of this outcome as extremely LOW (some in Europe would say non-existent). So it seems that the likely outcome will be the demise of the Euro and the end of the currency union. I do not see a smooth finale to the Euro experiment. There will be a tussle between EU-philes and the nationalists in the next 2 years. Eventually each country’s domestic politics will bring the end of EU in its current form as domestic concerns override the need to be in EU. That will take time.

Harlequin001's picture

China is trying to prop up the Euro because of one reason only, their entire wealth is in credit instruments be it foreign reserves or sovereign funds. credit instruments fail, so does China's influence.

Washington is already indebted to China, why do you think they refused to label them as currency manipulators with a currency peg?

Europe will fall apart because it cannot possibly be saved, mathematics dictates that a fractional reserve system of credit must fail through insolvency. The only question is do we sell ourselves hook, line and sinker to China before we do in the name of perpetuating the system?

That, is the treasonous act...


TexDenim's picture

China collects nations the way JP Morgan collected paintings. Spain is a nice addition to China's portfolio of real estate.

sethstorm's picture

Except that when worst comes to worst, China will find that not everyone takes kindly to their presence.  Possibly in a manner that has China regretting that they made such a move.


Zeilschip's picture

SS, we get it already, China = evil. You don't have to reply to every post in this thread. Go get a life.

Hannibal's picture

I wouldn't bet against the Chinese thinking (and their actions) well beyond the US dollar, bonds and treasuries. Preservation of the Euro is part of their overview. They are very much aware US banksters are out to destroy "competing" currencies if it means debasing the (US digital) dollar.

Herman Strandschnecke's picture

Ah but China is buying into world-beating transport technology such as Rover Cars and Vulvo. Snark, snark. They were going to wifi the London underground for the Olympics. (but probably realised that due to the trains being like cattle carts that you wouldn't be able to whip out your wireless device and hold on at the same time)?

TwoShortPlanks's picture

China buying debt = China buying the next buyers of their shit.

Don't create an economy, that takes ages, just buy the fucking thing.