China's European Bailout (And TBTF) Bid Hits Overdrive, As Wen Jiabao Is Now In The Market For Hungarian Bonds

Tyler Durden's picture

In continuing its recent pursuit of "white knight on full retard tilt" policies vis-a-vis the endless European bailout, and throwing good money after bad after horrible after totally lost, today Chinese premier Wen Jiabao said that not only would China do everything in its power to preserve the EUR (after all that CNY needs to be cheap against some currency) and "work for expeditious recovery and stable growth" but also unveiled that it is now preparing to go ahead an buy Hungarian bonds. As if owning Greek, Portuguese, Spanish and Irish debt was not enough. It seems China has learned from the best, and either knows something others don't (except for the SHIBOR market of course) or is actively preparing to become Too Biggest To Fail by making sure that should something bad happen to it literally the entire world will follow it into the depths of hell. Which, as Jamie Dimon, Vik Pandit, Lloyd et al have known for the past 3 years, is not a bad strategy. Look for China to keep buying up ever more European debt as it intertwines its fate with that of the rest of the central planning cartel: a development we can only compare to the ever deteriorating Spanish Cajas desire to buy up as many semi-healthy banks as they possibly can to prevent a policy determination to shut them, and their billions of bad debts, down.

More from Reuters:

Chinese Premier Wen Jiabao said on Saturday he was "still confident" that Europe can overcome the debt crisis and said China would remain a long-term investor in Europe's debt market.

The Chinese Premier spoke at a press conference with Hungarian Prime Minister Viktor Orban during a visit to Hungary.

"I have confidence in European economic development," he said. "China is a long-term investor in Europe's sovereign debt market. In recent years we have increased by a quite big margin holdings of euro bonds."

"In the future, as we have done in the past, we will support Europe and the euro," Wen added.

He said China stood willing to help Europe "work for expeditious recovery and stable growth," but did not give exact figures on how much euro zone sovereign debt China might buy.

Wen also said China was willing to buy a "certain amount" of Hungarian government bonds and aims to boost bilateral trade to $20 billion by 2015. He did not specify the amount of Hungarian bonds China would be willing to purchase either.

In a smart move, Jiabao is now touring his latest vassal purchases: aka peripheral Europe:

The Chinese premier is visiting Europe as the euro zone grapples to contain Greece's worsening debt crisis and possible default which analysts fear could roil global markets and trigger another financial crisis.

China has large holdings of euro-denominated assets in its vast $3.05 trillion foreign reserves and is desperate to do what it can to preserve the value of its holdings, though analysts say the extent to which China may commit fresh funds toward purchasing distressed European debt as a market-calming gesture, will likely be limited.

Wen Jiabao, the first Chinese head of government to visit Hungary for 24 years, is also seeking to explore greater trade ties with the country given its strategic location and increasing role as a logistics and trade processing hub in Eastern Europe for Chinese goods.

Hungarian Prime Minister Viktor Orban said China's buying of Hungarian government bonds would increase the security of debt financing for Hungary in the medium term.

"The purchase of government bonds is also important for Hungary as Hungary is able to finance itself from markets but the fact that China will buy further will bring huge security," Orban said.

Bottom line: only someone on the verge of desperation, and for whom cost basis is completely irrelevant, is willing to throw
as much good money after bad, as China has done in the past half year.

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cossack55's picture

I see Jim Willie thinks the Chinese are buying all this paper with the intention of trading it back to the nations concerned for all their gold.  Damn smart.  Are the Chinese accepting immigrants from failing western fascist republics?

morkov's picture

what's "good" money anyway? LOL

Al89's picture

I see the nations concerned are selling China all this paper with the intention of laughing smugly and certainly not going for a paper to gold swap when the shit hits the fan. Damn smart.


Chuck Walla's picture

The Mother of all Foreclosures is coming.  Will the Chinee toss all the Europeans out into the snowy street? Yeah, I think so.

Roger Knights's picture

"I see Jim Willie thinks the Chinese are buying all this paper with the intention of trading it back to the nations concerned for all their gold."

That would make sense--especially since the eurocrats China is dealing with have no respect for gold and would think they're getting a good deal. They should be asked in parliament, and by the european press, if they'd informally assured China that they'd make good any losses on bonds with compensation in gold.

Reptil's picture


It seems to them (the EU burocrats) owning gold is consequential (since the Central Banks are buying up gold again, and the ECB has gold as asset on their balance sheet), but they're on a course to preserve their euro currency house of cards at all cost.
This is of course a feeble attempt to kick the can further down the road.

The chinese have a totally different idea, they're thinking in longer strategic leaps, and clearly weigh the probabillity of their interaction not only as a medium term return, but as an opportunity to gain a foothold. Their move is not without risk, but the gold issue might mitigate that risk.

It's presented here as "China remains faithful in the euro"
Which might be off the mark, given the gold issue.

Mr Lennon Hendrix's picture

All your worthless paper are belong to us, ah!

ElvisDog's picture

Full retard is right. If the Greeks aren't going to pay back the German banks, why are they going to pay back the Chinese? The idea that the indebted countries will turn over their gold and other physical assets to the Chinese rather than simply defaulting on the loans they can't pay back is laughable at best. Is the Chinese army going to march 3000 miles to enforce their claims?

Thorlyx's picture

make that 5000 miles....

cossack55's picture

No. Their submarines might.

Al89's picture

That's exactly where mutually assured nuclear destruction comes into play. So no, China are being fucking retarded. The tiresome myth of Chinese invincibility needs to be exposed once and for all.

kito's picture

China is throwing money towards domination. They are far from retarded. They will own every sovereign asset when the world can't pay them back. You can't pay me? Fuck you. Pay me. Give me the Eiffel tower. Give me the Spanish steps. Give me the drilling rights to your national Parks. Always better to be the creditor. Always

A Man without Qualities's picture

Domination my arse.  The Chinese have two big problems - the leverage in their own economy and their exposure to the US.  Europe is China's biggest trading partner, with much stronger bilateral trade that with the US.  Translated that means that Europe makes stuff the Chinese like to buy - the US not so much.  The imbalance of trade with the US lead to high Dollar surpluses, that were recycled back into US assets until the Chinese suddenly realized there was no way the US was ever going to honor these obligations except by money printing.  Now the Eurozone crisis (which is brought to a head because the ECB cannot or will not monetize debt as the Fed does) is giving China a decent exit with the demand for US assets and the rationale of saving Europe.  It also helps support Eurozone demand for Chinese goods.

It may turn out to be a mistake, but at least you are hearing concrete plans for dealing with deficits in Europe, whereas the noises coming out of Washington suggests utter deadlock and confusion.  There doesn't even seem to be a consensus that there is a problem, the idea being you can always just print more money.

When the Chinese were buying trillions of US assets (treasuries and agency debt), nobody suggested they would end up owning Mount Rushmore, so nobody should imagine they are going to end up owning the Parthenon now.


As for Hungary, this is a key weakness in Europe.  Too much foreign denominated debt (c. 70% of mortgages were in Swiss Francs back in 2007), recent moves to cap the exchange rate moves by the central bank have not removed the risk, and the Swiss banks but also Austrian banks have big exposures.  Austria is AAA rated and any risk would throw the functioning of the ESFS/ ESM into doubt, so supporting Hungary is very important for Europe, in many ways, more so that Greece.


meizu's picture

if those countries default on the loan, the european union implode, banks across europe collapse, chinese will loose a few billion dollars, i think it's a good gamble.

Lazarus Long's picture

the Chinese are buying good will with depreciating dollars. When this all ends they will have the moral high ground to blame the US and the European governments

Ahmeexnal's picture

When Ecuador read the fine print on the chinese loans, they were insulted and rejected China's "help".

But the eurozone will accept any demands only to kick the can a few months more.

That alone tells you the current state of affairs.

Antipodeus's picture

What kind of 'Chinese military aircraft' costs $110M each?

wisefool's picture

Exactly. Why hold onto Doallars/Euros that are in a race to the bottom? And unlike in the past, history will not be written by one side only. (winner or loser)

As they legally aquire more and more of the worlds assets, they aquire more and more legitimacy to stop (or start) military intervention around the world.

Tibet and NK are now off limits to the west, soon they'll be deciding the fate of Africa. And they wont have to do it with the very expensive western ways (build the puppet aristocracy, maintain the aristocracy, when the aristocracy gets to full of themselves, remove the aristoctracy, repeat)

The Chinese will simply do cash over the barrell transactions, and not worry one bit how the money ripples through the local economies. 

ElvisDog's picture

Ridiculous. So according to your theory, the African nations will trade their resources for increasingly worthless Chinese paper (of whatever variety). This will cause rampant inflation in the African countries, which will make it even a worse deal to trade their resources for more worthless paper. And somehow this will be okay to the people in these African countries because the Chinese have a "legal" right to these resources according to someone's definition?

sun tzu's picture

Since when did the people in the African nations have any input into what their governments do? Even in the supposed civilized nations, we are led around by our noses

wisefool's picture

Chinese paper will never be worthless. They have the manufacuting capability to always have something on the shelves for africans to buy. It may be inferior goods, but they will have goods on the shelves. The western powers really can not do that anymore. Sure, there is highend and food, but toys, clothes, everything in a Walmart is manufactured in china.

The arcades never run out of stuffed animals redeemable for game of "chance" vouchers.


Al89's picture

They have no moral high ground. The West can simply turn around and inform China that they don't feel the need to pay back totalitarian dictatorships who sponsor rogue states like N.Korea. China already aren't exactly loved by their Asian peers. They have zero advantage right now.

three chord sloth's picture

China wants to be the Big Cheese when the US is done, and they think they are buying goodwill towards that goal. They are mistaken. The US built up a bankroll of goodwill with the other powers of the day through actions, like WWI and WWII, not money. The money came later. And having the sons of Germany, sons of England, sons of Italy, etc... throughout the US power structure helped as well.

China has done neither. It is mistrusted now, will only grow more distrusted as they grow in power. All their planning and spending will go for naught.

falak pema's picture

precisely they are exchanging devalued USD for in trouble Euros; its called risk diversion. As the USd credit pump is their main export earner, they need to continue pumping out USD to buy Euro bonds. Simple.

Boston's picture

Still, the USD looks like it's beginning to turn.....UP, at least for a few months.  

This would mesh well with a risk sell-off, and one final (and massive) push lower in US Treasury yields.

All of the above would reverse as soon as the Fed pre-announces QE3 (OT2, etc).

ivana's picture

Maybe will not reverse even after QE3 (besides normal drop of USD)

Hedgetard55's picture

That is the trillion dollar question. Does QE3 necessarily juice the stock market again like 1 and 2 did, or has the junkie developed a resistance to the junk?

Debt Rolling's picture

This is a frustrating strategy to witness, but it is unfortunately the best for China. By supporting Western sovereign bonds, they maintain their exports and become totally unattackable under a military viewpoint, for such a move would mean the economic end of the West. 

When will China stop buying the shittiest sovereign bonds? When their GDP will be >90% domestic. Then they allow the western collapse and import cheap goods. 

Machiavelic and brilliant. 

dearth vader's picture

I agree, DR. The Chinese are buying influence and market protection with their stack of toilet paper. It's a shame, defaults will no longer be possible where defaults are due.

The Profit Prophet's picture

No worries boys....just another floor on the global house of cards.  I'm thinking the Chinese are now placing the final two cards that form the roof of the structure....and there's a Greek toddler slowly crawling towards the base of the stack.

T.E.I.N. everyone! 

Fukushima Sam's picture

It is hard not to see this as bullish for something.

P-K4's picture

"The idea that the indebted countries will turn over their gold and other physical assets to the Chinese rather than simply defaulting on the loans they can't pay back is laughable at best. Is the Chinese army going to march 3000 miles to enforce their claims?" 

No, but they may delay (indefinitely) shipments of critical components, strategic minerals, help your enemies, send in rogue ex-CIA/KGB/THRUSH agents for hire, etc. To think the Chinese won't extract a price for default is a gamble that may prove detrimental to your nation in the long run. Ya' think they didn't learn anything from the US ?

Al89's picture

The game is to see how long China can stand inflation generated by a depreciating dollar, something that is also weakening their export sector. 

 The protests in China indicate that they will be crying uncle a little earlier than the U.S.

ElvisDog's picture

Except that what you wrote won't work so well for a Mercantilist economy with little evidence of increasing domestic demand. They would be killing their own export markets.

Hulk's picture

"Is the Chinese army going to march 3000 miles to enforce their claims?" 

The journey of 3 thousand miles begins with a single step...

Iam_Silverman's picture

"The journey of 3 thousand miles begins with a single step..."

and only goes as far as the supply line can be stretched....

manure's picture

The Chinese have all the collateral they can dream of within their own borders and firmly anchored in their own soil: all the capital, knowledge and technology invested by America and Europe in China over the last two decades. China does not need to march one inch to get what they want.  

Oh regional Indian's picture

It's quite clear that WWIII planning is in full effect. 

These are the moves, under various guises, of capital, people, technology.... look at the patterns over the past two decades.

And China does not act alone. It is firmly under the Rothschield/Rockerfeller thumb. Has been since British East India Company did in the Opium number on them.

To not take that into consideration is to totally deny a reality. We are just seeing the last-ish act now.



Franken_Stein's picture


That doesn't make sense.

Against whom and why ?

WW3 would be nuclear, but then TPTB would poison themselves from the fallout.


Oh regional Indian's picture


It's already underway actually. We are living in the time of asymmetric warfare. It's happening as we speak.

And why? I don't think the PTB have any survival issues. Especially not THE PTB.

But more than anything else, war is a matter of cycles, time, planetary alignments, the degree of madness in the system, the degree of fear in the system, the degree of greed in the system, the degree of apathy in the system and the destructive capability of the system.

It's just time and a whole lot of other esoteric and ordinary reasons.

Have you heard of Albert Pike?


Hulk's picture

WW4 will be fought with sticks and stones... Made that one up myself too!

(actually, attributed to Einstein)

Deepskyy's picture

I for one welcome our new Ant... er... Chinese overlords.


eurusdog's picture

"white knight on full retard tilt" Spit my breakfast all over the place laughing!

DeadFred's picture

The Chinese are at a very interesting point in their history. At the peak of their power, but with the cracks starting to show in the system, what will they do? If you try to put yourself in the mindset of an autocratic ruler of the Middle Kingdom (a disturbing thing to do) what would you do now? The West is off balance, do you try to start a scrap that will likely end with you on the top of the heap? Several times in Mao's Little Red Book are sayings to the effect that war is not to be feared because the Party gains power after every war. The leaders have all read that book. I'm very suspicious that the Chinese leadership is looking at the possibility of starting an economic conflict for their gain.  They now own enough paper to collapse the dollar and the Euro if they so choose, it would suck from their point of view to go to that trouble only to have to compete with the Hungarians for world dominance (sarc). I'm just saying be very suspicious of the Chinese for the next couple months or until this unsettled time stabilizes, assuming it ever does.

IQ 101's picture

The Chinese wont march they will drive, it is faster

and it is Biblical.

I dont think it will happen because of unpaid debts,but resources,

they will at some point desire to protect the investments they have made in Africa,M.E.and Europe.

Bindar Dundat's picture

All of you ABOVE are freaking NUTS!!


In 3500 years the Chinese have NEVER had territorial ambitions and they will not for the next 3500 years either. You are all NUTS!

TruthInSunshine's picture

This is idiocy to the infinity.

Europe is far more fractionalized than are the United States, and the integrity of the Eurozone is very much in doubt.

China is now behaving as Japan did at the peak of its confidence and hubris, which if any moment marked the top, it was the 1989 purchase of much U.S. Real Estate, things such as Pebble Beach Golf Course, and American Companies such as Columbia Pictures by the Japanese, when the Nikkei had hit 40k.

The main difference is that Japan had leading edge technology and fabrication capabilities, and could dominate export markets bases on technological prowess - even after its internal economy broke (for a variety of reasons).

China is a slave labor factory for the world. It can't even properly steal technology when it's under its nose in the form of multinational manufacturing plants and R&D facilities!

If China doesn't get its own people into the 'we love debt' mindset, and given cultural resistance to this line of reasoning (good for the Chinese) - this will not be easy if even possible, it is not going to be able to break away from its cheap export model, assuming it wants to grow its economy at a fast enough pace to keep employment (its biggest challenge) stable.

China will never be as technologically proficient as Japan.

China will not be able to retreat from its long standing reliance on cheap labor (no matter a few marginal incidents in currency markets and even labor rates in the last year or so) if it wants to continue to grow its economy.

The tension between the U.S. and China on currency depegging is only going to get worse as China realizes these fundamental truths. Besides, much of this tension is really for show (to try and appear to appease certan U.S. political constituents - labor/unions under the Democrats), as multinational corporations don't want the dynamics now at play in China to change too much, anyways. They've invested way too much in long term plant & capital for manufacturing.

If China thinks that Europe is going to be a better overall market upon which it can depend, long term, for exports, it is smoking too much opium.

If China thinks interventionism in and bailing out the Euro or Eurozone is a wise use of its resources, all things being considered on the global stage, or that buyingbad Euro debt, likewise, it is smoking way too much opium.

China seems destined for a Japanese-like act of 1989-style epic stupidity - not for the same reasons and not even because China is similarly situated as Japan was in 1989 (it isn't and they aren't) - and maybe this is the red flashing light signaling a major contraction in China is about to take place.

I am confident of one thing: China is behaving desperately.