Nov. 8 (Bloomberg) -- China said it’s “available” to support Portugal’s efforts to come through the economic crisis that has prompted its borrowing costs to spiral this year.
"We are available to support, through concrete measures, Portuguese efforts to face the impacts caused by the international financial crisis, and deepen and broaden our economic and commercial cooperation,” Chinese President Hu Jintao said in Lisbon yesterday.
He didn’t specify what such measures might be. The Chinese president yesterday ended a two-day visit to Portugal and did not mention Portuguese bonds or debt in public comments.
The extra yield investors demand to hold Portuguese debt rather than German bunds widened last week even after the minority government on Nov. 3 passed a budget plan that features wage and spending reductions to trim the euro region’s fourth- largest deficit from 9.3 percent of 2009 gross domestic product.
China “has always given positive and favorable consideration” to bond purchases when making state visits, Vice Foreign Minister Fu Ying said on Oct. 28.
Portuguese Economy Minister Jose Vieira da Silva on Nov. 6 said that the existence of institutions and countries that are interested in diversifying their portfolio with Portugal’s bonds is “a positive factor.”
"If we are able to place that debt with a logic of greater diversification and greater equilibrium among the various financial agents, that is a factor of greater security not only for the placement of that debt, but also for its management,” Vieira da Silva said.
Bond Sales
Portugal plans to sell as much as 1.25 billion euros ($1.75 billion) of bonds due 2016 and 2020 on Nov. 10. The yield at a Nov. 3 auction of 1.03 billion euros of three- and 12-month bills climbed and demand declined for the securities. Portugal paid 3.26 percent for the 12-month debt, up from 2.886 percent on Oct. 6.
The spread on Portugal’s 10-year bonds over German bunds was at 410 basis points on Nov. 5. The spread soared to a euro- era record of 441 basis points on Sept. 28. German calls for bondholders to share the burden of any future debt restructuring have also made investors wary of lending to Europe’s most- indebted nations.
Portugal’s planned spending cuts for next year are set to be the biggest since at least 1978, according to EU statistics office Eurostat, as the government tries to convince investors it can narrow its budget deficit and curb debt. The austerity measures may hurt Portugal’s economic growth, which has averaged less than 1 percent a year in the past decade.
Exports
The government is counting on exports such as paper and wood products to support growth. The budget forecasts economic growth of 0.2 percent next year, slower than this year’s estimated 1.3 percent pace.
"The Chinese government encourages competitive companies to invest and operate in Portugal, and we welcome Portuguese companies to participate energetically in the competition in the Chinese market,” Hu said yesterday. “We will do everything so that trade between China and Portugal can double by 2015.”
Portugal’s budget gap last year was the highest in the euro region after Ireland, Greece and Spain. It aims to lower the shortfall to 7.3 percent this year, 4.6 percent in 2011 and meet the EU’s 3 percent limit in 2012.
The Finance Ministry forecasts Portugal’s public debt as percentage of GDP will increase to 86.6 percent in 2011 from about 82.1 percent this year. Finance Minister Fernando Teixeira dos Santos said on Oct. 16 that he expects the ratio to "stabilize” in 2012 and to start declining in 2013.
Portugal’s budget plan calls for lowering the wage bill 5 percent for public-sector workers earning more than 1,500 euros a month, freezing public hiring and raising the value-added tax by 2 percentage points to 23 percent. The governing Socialists have agreed to reconsider some public-works projects including public-private partnerships to overcome the opposition of the Social Democratic Party to the budget.
