MercoPress. South Atlantic News Agency

China to keep buying Spanish public debt and invest in financial industry

Prime Minister Jose Luis Rodriguez Zapatero, one of many queuing in Beijing for support and aid

China will invest in Spain’s savings-bank industry and continue buying public debt, a Spanish government official cited Chinese Premier Wen Jiabao as telling Prime Minister Jose Luis Rodriguez Zapatero at a meeting Tuesday in Beijing.

China also pledged to invest in Spanish privatizations and increase imports from the country during Rodriguez Zapatero’s visit to Beijing, said the official, according to Bloomberg.

China holds 25 billion Euros of Spanish debt which compares with the central government’s total debt of 523 billion Euros, according to data from the Spanish Treasury.

Spain is trying to convince investors it can slash the Euro region’s third-largest budget deficit while shoring up savings banks hit by the collapse of a debt-fuelled property boom. The government tightened capital rules for lenders in February and gave them until September to meet the new rules, prompting a series of savings banks, known as ‘Cajas’, to seek new investors.

During a visit to Madrid last January Vice Premier Li Kegiang said China would continue buying Spanish debt, as he expressed support for measures taken by the Socialist government to rein in spending and steer the economy back to growth after a three-year slump.

The gap between Spanish and German borrowing costs fell to 171 basis points Tuesday, compared with 175 basis points Monday and a Euro-era high of 298 basis points on Nov. 30 after Ireland sought a European bailout. The spread, which averaged 15 basis points in the first decade of monetary union, has narrowed 9 basis points since Portugal became the third euro member to seek a European rescue on April 6.