James Saft's Reuters article, China runs circles round adversaries, brought to light an ingenious Chinese strategy.
Chinese premier Wen Jiabao said in Athens on Saturday "With its foreign exchange reserve, China has already bought and is holding Greek bonds and will keep a positive stance in participating and buying bonds that Greece will issue. China will undertake a great effort to support euro zone countries and Greece to overcome the crisis."
Since China's currency is pegged to the dollar, making a move to keep the euro strong keeps the yuan weak; a weak yuan is good for Chinese exports.
Lombard Street Research economist Gabriel Stein wrote "Fiscal troubles in the euro area mean a volatile and most likely weakening euro. By contrast, support from a large outside player like China is likely to strengthen the euro. But against whom will the euro strengthen? Primarily against the dollar -- to which the Chinese authorities have pegged their own currency at a rate generally accepted to be considerably undervalued."
However, China's move is not a pure currency play. As I wrote in this series (read here and here), China has already leased one port in Piraeus, Greece and is building another, aiming to create a hub to rival Rotterdam, Europe's largest port. China is killing two birds with one stone, protecting its currency and its ever-growing exports to Europe. Brilliant.
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