China has been shopping for European sovereign debt for some time. The so-called 'red knight' for the struggling Eurozone periphery has come in with timely aid for Greece, and offered support to Ireland and Spain.

On Thursday Spanish daily El Pais reported that China has offered to purchase Spanish sovereign debt worth about $7.89 billion. There is euphoric expectation that China, armed with its $2.6 trillion reserves, will emerge as the ultimate white knight for Europe. Is that belief founded on facts and substantiated by strategic thinking?
Analysts at Capital Economics have said China is unlikely to be able or willing to do much to solve the debt crisis in the euro-zone, even though the popular perception is that it will.

China’s leaders naturally want to be polite to foreign hosts and visitors, but their actions frequently fall short of the expectations raised by their words, write Julian Jessop, chief international economist and Mark Williams, senior China economist, in a note.

They express doubt if Beijing will be willing to become a buyer of last resort of the debt of a country close to default, though China does stand to gain from a healthy eurozone economy. China’s officials are acutely aware of the losses they have made on some past foreign investments and will not want to be seen to risk their peoples’ capital on a lost cause. China clearly has a vested interest in the stability of the euro-zone economy and financial system. But if Europe cannot sort out its own problems, or if some form of euro break-up was actually in the long-term interests of many of the participants (as we believe), Beijing is not going to stand in the way. The vast majority of China’s overseas assets is still held in dollars, and the value of at least some of these assets would probably rise if the uncertainty over the future of the euro continued.

Significantly, the analysts also point out that eurozone's difficulties go beyond finding investors to buy sovereign bonds each month.

The willingness of China or anyone else to buy sovereign bonds will not alone see the region through its more complicated systemic difficulties.

Ever since the peripheral debt crisis began to threaten the common currency and the union, China has offered support to efforts to stabilize the eurozone.

China reiterated the commitment on Tuesday saying it supported Europe's efforts to deal with the peripheral debt crisis and said Beijing will not cut down its holdings of European sovereign bonds “EU members have taken a number of steps to actively respond to the sovereign-debt crisis,” Chinese Vice-Premier Wang Qishan said at the two-day EU-China High Level Economic and Trade Dialogue which concluded in the Chinese capital on Tuesday.

“We hope these measures will quickly produce results and lead to a steady recovery of the EU economies,” Wang added.

In October, Chinese Premier Wen Jiabao offered to buy more Greek government bonds at a time when the debt-hit county was facing down a steep rise in its financing costs. 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, Wen was quoted by Reuters.

Jessop and Williams say China does want to build its image as a responsible international power. Certainly, China will see opportunities here. By presenting itself as a white knight, China portrays itself as a responsible global player and presumably hopes to improve its leverage over sensitive issues such as its desire to be given market economy status by the EU.