Chinese sovereign wealth fund stops buying European government debt

The eurozone has lost a crucial lifeline as China's biggest sovereign wealth fund said it no longer wanted to buy European government debt.

The retreat by China came amid political deadlock in Greece Photo: AP

By Louise Armitstead
6:49PM BST 10 May 2012

UK Daily Mail:

Amid resurgent political and financial crisis in Spain and Greece, Gao Ziqing, head of the China Investment Corporation (CIC), said the $440bn (£273bn) fund was "looking at opportunities in Europe" but added: "We don't want to buy any government bonds."

Eurozone leaders have tried to attract investors from Asia to help mop up excess sovereign debt. Both China and Japan have been supportive in the past, in part because Europe is one of their biggest export markets.

The retreat by China came amid political deadlock in Greece, the bank crisis in Spain and signs of a deepening economic recession.

European markets, which have plunged in recent days, closed up on hopes that Athens was close to getting a new government and that Madrid would on Friday stabilise its banks. The Eurostoxx was up 0.5pc, the German Dax rose 0.7pc and the FTSE climbed 0.3pc.

The euro fell to a three-and-a-half-year low against the pound.

Evangelos Venizelos, the head of Greek Pasok party, continued talks into Thursday night in an effort to form a coalition. If he fails, fresh elections will be called in June.

European leaders confirmed that financial aid to Greece will stop if any new government refuses to stick to the terms of its bail-out. The European Financial Stability Facility (EFSF) said it had withheld €1bn of the €5.2bn payment due on Thursday. Klaus Regling, chief executive of the EFSF, said: "There will be no further disbursement before there is an agreement with the Troika [officials from the EU, ECB and IMF]."

Dire economic data from the the Hellenic Statistical Authority added to the pressure on politicians to reach agreement. Youth unemployment soared to 53.8pc in February, 3.5pc higher than a month earlier. Industrial production in Greece slumped by 8.5pc on an annual basis in March, according to state figures, while the country's manufacturing sector contracted by 8.8pc.

Axel Weber, the former head of the Bundesbank who is now chairman of UBS, warned that a hard default by Greece was "not off the table". Speaking at a conference in London, Mr Weber warned that rescue measures, including the ECB's €1 trillion cheap loan programme, had "only bought time". He added: "Any renewed escalation of the crisis is also likely to come home to roost, even in Germany."

Ladbrokes has suspended bets on Greece leaving euro and a poll by Bloomberg found that 57pc of investors expect Greece to exit the currency this year.

Meanwhile, French industrial production was shown to have fallen more sharply than expected in March, by 0.9pc, emphasising the impact of the crisis on the eurozone's northern core. The Bank of France now expects the economy to stagnate for the first half of the year.

Angela Merkel stuck to her guns. She said: "Growth funded by debt will just lead us back to the beginning of the crisis. We can't do that and we won't do that."