Italy Seeks Chinese Cash to Buy Bonds

The Italian Finance Ministry has held talks with Chinese officials in an attempt to persuade Beijing to buy “significant” amounts of Italian bonds and invest in strategic companies.

 

The Italian Finance Ministry has held talks with Chinese officials in an attempt to persuade Beijing to buy “significant” amounts of Italian bonds and invest in strategic companies.

 

According to a report by The Financial Times, Italy’s Finance Minister Giulio Tremonti met up with a Chinese delegation, led by the chairman of China Investment Corp. (CIC) Lou Jiwei, last week in Rome where they discussed possible bond purchases by the Chinese sovereign wealth fund alongside representatives of Italy’s Cassa Depositi e Prestiti, a state-controlled entity that has established an Italian Strategic Fund open to foreign investors.

Italian officials were also in Beijing two weeks ago, where they met other representatives from the CIC as well as China’s State Administration of Foreign Exchange (Safe), which manages the bulk of China’s US$3.2 trillion foreign exchange reserves.

Thus far, it is unclear whether the talks have been successful, even with the arrival of Chinese officials in Rome. In 2010, Chinese delegates had visited Greece and other debt-ridden European economies, though the highly anticipated investments failed to materialise.

However, recent comments made by former People’s Bank of China Vice Governor Wu Xiaoling may have some form of indication to China’s future plans.

Wu told Marketwatch that helping Italy would be positive for China and the world. She added that while Italy had to solve their own problems, the rest of the world could assist by affording the nation time and confidence. Wu also said that “panic” in financial markets over European sovereign debt issues “doesn’t help solve the problem.”

In addition, some analysts also believe that a Chinese bailout could boost Beijing’s stature within Europe.

“It has benefits for them and obviously improves their standing with the Europeans,” said Royal Bank Canada analyst Brian Jackson to Marketwatch.

Beijing is concerned “about the value of their existing [euro] holdings, so if they can provide some support, that will lessen the negative impact upon their portfolios,” said Jackson.

The speculation of Chinese investment in Italy caused the US dollar to dip in Asian trading hours Tuesday, and helped calm market nerves over the European debt crisis.

Italy has been under intense pressure recently to pass more than €50 billion (US$67.8 billion) in austerity measures in order to balance its budget by 2013. The country currently faces more than €1.9 trillion in public debt, with the debt considered too large for other euro-zone countries to bail out.

Last month, the European Central Bank stepped in to buy Italian bonds though they have warned that these purchases are only temporary.