China and Germany ink $15bn deals

29 June 2011 Last updated at 04:35 GMT China has been looking to foster stronger ties with its key trading partners China and Germany have signed trade deals worth $15bn (?9bn) following meetings between the two country's leaders in the German capital Berlin.

Chinese Premier Wen Jiabao and German Chancellor Angela Merkel also targeted an increase of bilateral trade to 200bn euros ($284bn; ?178bn) over the next five years.

Germany is by far China's biggest trading partner in the European Union.

China and Germany are the two biggest exporters in the world.

Premier Wen said the focus of the meeting was to "boost the growth potential of bilateral trade... and to once again double our bilateral trade volume in five years".

The deals include an agreement between Airbus and China Aviation Supplies for delivery of 88 A320 planes with a list price of $7.5bn.

'Helping hand' Premier Wen's Europe trip comes at a time when many countries in the region are facing sovereign debt problems.

As countries like Greece struggle to pay back debt and restructure their finances, China has offered some reprieve to the region's economies.

"China has expressed support for Europe at various times," he said.

"In other words, when Europe is in difficulty we will extend a helping hand from afar," he added.

However, the Chinese premier did not give details of the amount of debt it may purchase or which countries' debt it may look at.

"We will, according to need, definitely purchase certain amounts of sovereign debt," Premier Wen said.

China has vast amounts of cash available, with its foreign exchange reserves at a record high of more than $3trn.

"The exchange reserves put China in a strong position to help Europe," said Duncan Innes-Ker, of the Economist Intelligence Unit.

Diversifying exposure

However, analysts said that China's support for countries in the middle of the European debt crisis was also driven by its own ambitions.

About a quarter of China's foreign exchange reserves are invested in euro-denominated assets, according to various estimates.

"It has a strong interest in the euro not collapsing as a result of the current crisis," said Mr Innes-Ker.

"It is willing to take risks to achieve its long-term goal that the euro serves as an alternative to the dollar as a reserve currency," he added.

Mr Innes-Ker said that the longer China maintains the link between the yuan and the US dollar, the more its economy will be affected by US monetary policy.

"China's dependence and exposure to the US dollar creates issues for its own economy to the extent that it's a hostage to US monetary policy," he said.

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