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Daily Archives: October 3, 2010

China to offer support to Greece

According to WSJ,

Chinese Premier Wen Jiabao offered Greece a major vote of confidence on a visit to the debt-ridden European nation, saying China will continue to buy Greek bonds and announcing the creation of a $5 billion fund to help Greek shipping companies buy Chinese ships.  The remarks represent some of China's most substantive support for the euro zone amid the region's debt troubles, and reflect the Asian giant's growing willingness to wield its economic clout to obtain wider international influence.

This is another attempt that China is trying to diversify away its investment in dollar-denominated assets.  It's still too early to tell the impact of these government initiated investments. But history shows repeatedly when government gets into the business of firms, banks and individuals, it usually produces very poor results.  What China should do is to reform its currency policy and speed up its financial reform; What it should not do is to continue building up foreign exchange reserves, and firms and businesses should be allowed to have their own foreign currency account and manage the currency risk by themselves.