China is taking advantage of Europe’s debt problems to expand its influence. It is doing this through large-scale investments and purchases of government bonds issued by countries which are in serious financial strife.
The so-called PIIGS countries in (Portugal, Ireland, Italy, Greece and Spain) are heavily indebted and China is in a position to help them out of their financial misery.
This is because China has amassed some US$2.5 trillion in currency reserves and an estimated 70% of this is invested in dollar-based holdings. But the value of the dollar has been declining while the euro has become a more attractive currency.
Beijing’s monetary authorities have therefore started to increasingly invest their reserve stockpile in non-dollar currencies.
Der Spiegel reports that one of the leading proponents of this diversification is Yu Yongding, an influential economist and former advisor to the central bank, the People’s Bank of China. Yu is known as "the dollar killer" in Beijing.