June 26 (Bloomberg) -- Chinese Premier Wen Jiabao pledged support for Europe as the region copes with a sovereign debt crisis, saying China will remain an investor in European markets.
“China is a long term investor in Europe’s sovereign debt market,” Wen said in translated comments at a press conference with Hungarian Prime Minister Viktor Orban in Budapest yesterday. “In recent years, we have increased by quite a big margin our holdings of government bonds. We will consistently continue to support Europe and the euro.”
China will buy a “certain amount” of Hungarian government bonds, Wen said. The premier later travelled to the U.K. and will also visit Germany on a three-nation European tour.
European Union leaders vowed on June 24 to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts by the end of the month, pledging to do whatever it takes to stabilize the euro economy.
European stocks fell for an eighth week, the longest stretch of losses since 1998, and German government bonds rose for a third week as concern grew that Greece will default and the Federal Reserve cut its growth forecast for the U.S.
“China is ready to work with Europe to share opportunities, cope with challenges and achieve common development, and to make unremitting efforts for stable development of the world economy and an in-depth development of China-Europe ties,” China’s state-run Xinhua news agency cited Wen as saying yesterday.
‘Huge Security’
China’s pledge to buy government bonds from Hungary, which needed an International Monetary Fund-led bailout in 2008, lends “huge security” for the government’s financing needs in the medium term, Orban said.
Orban, who was elected last year, funneled private pension funds to the budget and used special taxes on the banking, energy, retail and telecommunications industries to raise cash after the government broke off negotiations with the IMF last year. Hungary has already completed its 4 billion-euro ($5.7 billion) foreign currency denominated financing plan for this year after making sales of debt in euros and dollars earlier in the year.
“Hungary can finance itself today from the market but it gives us huge security if China buys Hungarian government bonds,” Orban said. “I think uncertainty about the country’s medium-term financing will now disappear.”
Orban is cutting welfare spending to prevent the budget from unraveling after the impact fades from one-time taxes on industry and measures boosting payments from pension funds. The Cabinet aims to save 550 billion forint ($2.9 billion) next year and 900 billion forint annually by 2013.
Logistics Base
China, which aims to boost trade with Hungary to $20 billion by 2015 from $8.7 billion last year, is also extending a 1 billion-euro loan via its state development bank to finance projects in Hungary, Wen said.
China plans to set up a European transportation logistics base as part of 12 agreements the two sides signed yesterday, the Budapest-based Development Ministry said in a statement posted on its website yesterday.
The Bank of China signed a 1.1 billion-euro cooperation agreement with Hungarian chemicals producer BorsodChem Zrt., controlled by China’s Wanhua Industrial Group Co.
The two sides reached a strategic accord on setting up a European logistics hub for Huawei Technologies Co. in Hungary and for Shenzen Canyi Technology Co. to bring manufacturing capacities to the central European country.
China will also build a citric acid factory with an annual capacity of 60,000 metric tons, the ministry said.
--Editors: Paul Tighe, Nerys Avery
To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Paul Tighe at ptighe@bloomberg.net
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