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Economy

China Ramps Up Investment In Europe As Continent's Debt Crisis Deepens

China is already America’s biggest creditor. Now it’s setting itself up as savior of the euro by buying government bonds and company shares. Just how much money is being invested is still not clear. One thing, however, is: China’s moves are very much calc

Wen Jiabao arrives at 2009 Davos forum in Switzerland (WEF)
Wen Jiabao arrives at 2009 Davos forum in Switzerland (WEF)
Markus Zydra and Marcel Grzanna

MUNICH -- Back in the fall of 2010, China's prime minister, Wen Jiabao, must surely have enjoyed the state reception he got in Italy, when Rome's Colosseum was flooded in red light and calligraphic messages wishing eternal friendship between the two countries. Italian Prime Minister Silvio Berlusconi spared no expense, paying court to the rich uncle from Beijing. Berlusconi seemed to sense he'd soon be needing something from his guest. That time is now upon us.

Facing huge debt, Italy has been conducting intensive negotiations for weeks with representatives of Chinese investment funds trying to get them to buy Italian government bonds and shares in leading Italian companies. Italy is carrying a national debt load of 1.9 trillion euros. Interest rates for the euro-zone member have gone up sharply over the past few weeks, and they may not be able to pay. To widespread criticism, the European Central Bank has been buying Italian bonds.

Now it's up to China to decide. The country is sitting on forex reserves amounting to $3.2 trillion. Little wonder, then, that Wen Jiabao is a welcome guest in financially-strapped eurozone countries. "If Europe is having difficulties, we will extend a helping hand," he promised last June during another trip to Europe. If necessary, they would buy euro-zone country government bonds in appropriate quantities.

Such words are music to Greek, Italian, Spanish and Portuguese ears. The second largest economy in the world playing savior of the euro! The debt-plagued Europeans seem to be able to forget all too easily that China is a dictatorship. "Good friends are there to help when someone needs it," said Wen Jiabao at a meeting with his Greek counterpart George Papandreou. Such dulcet sounds are enough to move Athens to tears.

In Germany, and other relatively wealthy euro-zone countries, all this meets with a healthy dose of mistrust. If China is buying European government bonds, EU Commissioner Günther Oettinger noted recently, it is most certainly not out of charity: "China takes over the EU, and we Europeans sell our souls."

What's China's stake?

Nobody knows exactly how much money China has already invested in European government bonds. In Italy, the number is apparently 4% of total debt, which would amount to 76 billion euros. In Spain, Portugal and Greece, several billion more. However, as the latest worsening of the euro crisis shows, China's move did not influence financial markets.

But it's enough for China to be seen as a potential savior in case of dire emergency. The apparent generosity of the new economic superpower is aimed at changing European perceptions and polishing up China's image. China needs to win the confidence of European trade partners because that will mean quicker acceptance of it as a market economy -- thus removing various constraints with regard to trade with the EU. The EU – not the United States -- is China‘s most important trading partner.

But China has also been investing directly in European companies. The country is seeking to build down its reserves of dollars and transfer more capital to Europe. The People's Bank of China recently bought strongly into Munich Re. And in early August, Lenovo, the Chinese computer manufacturer, bought a majority holding in German consumer electronics company Medion.

Germany is officially China's most important European partner, but so far they've held off with the really big investments out of fear of political pushback such as occurred in 2008 when Dresdner Bank was up for sale and an alleged offer from China unleashed a storm of political concern.

In the last five years, China has invested $218 billion worldwide according to estimates of the U.S.-based Heritage Foundation. Of that, 34.8 billion euros went to Europe, $28 billion to the United States, and $61 billion to Canada and South America.

China is spending a lot on infrastructure projects. In Greece, the Chinese logistics company Cosco controls the largest container terminal in the port of Piraeus for the next 35 years. In Iceland, a country that was also ravaged by the financial crisis, a Chinese investor bought up half of Stormur Seafood. China has also invested in the construction of a deep-water harbor in Iceland and the expansion of Keflavík International Airport. Such projects generate a lot of brownie points with local populations and give Wen Jiabao leverage to take pot shots at the Anglo-Saxon finance economy model.

"No to a speculation economy," he said recently on a state visit to Hungary, adding: "Our economy is based on work."

Read the original story in German

Photo - World Economic Forum

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FOCUS: Russia-Ukraine War

Why Russia Is Suddenly Deploying Air Defense Systems On Moscow Rooftops

Russia is increasingly concerned about security from the sky: air defense systems have been installed on rooftops in Moscow's government quarter. Systems have also appeared in several other places in Russia, including near Vladimir Putin's lakeside home in Valdai. What is the Kremlin really worried about?

photo of ice on the river in Moscow

Clear skies, cold reality along the Moskva River

Anna Akage

-Analysis-

The Russian Defense Ministry has refused to comment. State Duma parliamentary officials say it’s a fake. Still, a series of verified photographs have circulated in recent days of an array of long-range C-400 and short-range air defense systems installed on three complexes in Moscow near the Kremlin, as well as on locations in the outskirts of the capital and in the northwest village of Valdai, where Vladimir Putin has a lakeside residence.

Some experts believe the air defense installations in Moscow were an immediate response to recent Ukrainian statements about a new fleet of military drones: The Ukroboronprom defense contracter said this month that it completed a series of successful tests of a new strike drone with a range of over 1,000 kilometers. Analyst Michael Naki suggests that Moscow’s anti-air defense systems were an immediate reaction to the fact that the drones can theoretically hit Kremlin.

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Yet the air defense installations in Valdai seem to have been in place since late December, following Ukrainian drone attacks on a military airfield deep inside Russia’s Sorotov region, 730 kilometers (454 miles) southeast of Moscow.

Others pose a very different rationale to explain Russia’s beefing up anti-air defenses on its own territory. Russian military analyst Yan Matveev argues that Putin demanded the deployment of such local systems not as defense against long-range Ukrainian drones, but rather for fear of sabotage from inside Russia.

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