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Fellegi says China could buy Hungarian debt

China's commitment to buy Hungarian sovereign debt could include the purchase under market conditions of both forint- and foreign-currency bonds, National Development Minister Tamás Fellegi told Reuters on Wednesday.

After a political decision was made last week about Chinese participation in Hungarian debt financing, the two governments will now sit down for talks about the exact timetable and other technical details, Fellegi said.

Chinese Premier Wen Jiabao said on Saturday during a visit to Hungary that China was willing to buy a "certain amount" of Hungarian government bonds, and aims to more than double bilateral trade to $20 billion by 2015.

"What I can say about government bond buying is that all gates are open. What both parties must pay attention to is that Hungary finances its debt from the market, therefore Chinese participation must be done under market conditions with market tools," Fellegi said. "What we discussed was Hungarian government bonds, this typically means bonds issued by the (debt agency) ÁKK," the national economy minister added.

Fellegi said Chinese participation would give Hungary greater security in debt financing in the medium term.

The national economy minister declined to specify amounts and said talks will start between the two sides on what types of Chinese banks could take part – and how – in Hungarian debt financing.

"Beyond the fact that the two parties have agreed that the People's Republic of China in a given case will buy a fair amount of Hungarian government bonds, what this precisely means will be decided in the concrete situation," Fellegi said. The national economy minister added that "About this, consultations will start between the partners without delay on what this could mean in the next years, under what timetable."

Fellegi said he also met the governor of China's central bank on the sidelines of last week's meeting, and they agreed on a schedule for continuing talks on the debt issue.

The financial cooperation will also include a €1 billion credit line provided by the China Development Bank for financing projects in Hungary with the involvement of Chinese firms.

Fellegi said the broad financing agreement with China could also include a joint development fund to be set up by Hungary's state development bank MFB and a Chinese bank to finance Chinese projects in Hungary and also Hungarian projects in China.

Besides the financial cooperation, Hungary also aspires to become a logistics hub for Chinese firms exporting to western Europe, which Fellegi said this would mean creating one or more logistics and cargo centers in various parts of Hungary.

Fellegi said such logistics centers -- for example in the city of Szombathely (W Hungary) or in the northeast of the country - could generate and attract additional Chinese investment.

The national economy minister said the Bank of China, whose only office in central and eastern Europe is located in Hungary, could become active in creating the financial infrastructure for increased Chinese investments.

Fellegi also said there were talks underway with Chinese investors on the building of a railway line connecting Budapest's Liszt Ferenc Airport with the city center, and on the participation of Chinese firms in modernizing railway stations.