(eToro Blog) Whether it was simply mis-communication or over-eagerness on the part of the translator, the report last week that the Chinese government intended to invest in Spanish banks caused a small rift in Sino-European relations. As it turned out, the report was erroneous, and the Spanish Prime Minister was compelled to retract the statement, which had said that China was prepared to invest some €9 billion in Spain's fiscally troubled savings banks.

The Chinese government has since done the necessary absolutions to rectify the situation with the European Union, but it is likely to give investors pause. Is China still "comfortable" with Eurozone debt, or are worries over the possibility of a Greek debt haircut leading them to look for investment opportunities elsewhere?

The Chinese ambassador to the European Union reassured officials there that they are interested in investing in sovereign bonds, including those of the struggling member countries. The ambassador said that the motivation for future bond purchases is twofold: First, to stabilize and strengthen the relationship between the trading partners, and second, to generate a better return on investments.

What is worrying, said the ambassador, is that the Chinese government is being bombarded with conflicting messages. On the one hand, they're being asked by officials to increase the scope of their investment in the Eurozone. Yet, even as they comply, they're confronted with higher import duties, and complaints being lodged of unfair trading practices. While the ambassador noted that the two issues are not linked, he did imply that Beijing will continue to look out for its own self-interest.

China is already heavily invested in the Eurozone, owning several billion Euros worth of Portuguese and Greek debt. A debt haircut would obviously be unwelcome, though the ambassador chose not to comment on that possibility. According to him, Beijing is hopeful that the Eurozone's policy makers are able to ensure the security of their investment.

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