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Italy Turns to China for Help in Debt Crisis

Guy Dinmore, Financial Times
Monday, 12 Sep 2011 | 3:37 PM ET

Italy’s center-right government is turning to cash-rich China in the hope that Beijing will help rescue it from financial crisis by making “significant” purchases of Italian bonds and investments in strategic companies.

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According to Italian officials, Lou Jiwei, chairman of China Investment Corp, one of the world’s largest sovereign wealth funds, led a delegation to Rome last week for talks with Giulio Tremonti, finance minister, and Italy’s Cassa Depositi e Prestiti, a state-controlled entity that has established an Italian Strategic Fund open to foreign investors.


Italian officials were in Beijing two weeks ago to meet CIC and China’s State Administration of Foreign Exchange (Safe), which manages the bulk of China’s $3,200bn foreign exchange reserves. Vittorio Grilli, head of treasury, met Chinese investors in Beijing in August. Italian officials said further negotiations were expected to take place soon.

The possibility of Chinese investment comes at a critical moment for Italy, as markets demand increasingly high yields to buy Italian public sector debt, projected to reach 120 per cent of GDP this year, a ratio second only to Greece in the eurozone.

Mr Tremonti has written extensively in the past about his fears of China’s “reverse colonization” of Europe. But he has been driven to seek new alternatives as Europe prevaricates over strengthening its bail-out fund and the European Central Bank warns that its month-old bond-buying program cannot go on indefinitely. In a reflection of Italy’s refinancing problems, the treasury on Monday sold €11.5bn of short-term notes at higher yields.

European analysts were cautious over the outcome of talks. Despite Beijing’s numerous expressions of confidence in the creditworthiness of countries such as Greece and Portugal analysts say Chinese purchases of peripheral European debt have been relatively small.

How much of Italy’s €1,900bn of debt is already held by China is unclear, though one Italian official told the FT that Beijing held about 4 per cent.

Italy’s debt crisis has forced the government to consider possible sales of strategic stakes in companies such as Enel, the Italian power utility, and Eni, the oil and gas multinational.

Cassa Depositi e Prestiti is a founding member of the informal “long-term investors club” along with similar institutions in France and Germany. In July it launched its Italian strategic fund with an investment of €4bn that it plans to expand to €7bn with participation from other sources, including foreign institutional investors.

Euro Pares Losses on China Report
Guy Dinmore, Financial Times with the story on a Chinese investment firm buying Italian debt.

CIC was set up in 2007 with capital of $200bn and its assets under management now total about $410bn. It says it “maintains a strict commercial orientation and is driven by purely economic and financial interests” and that it is committed to “high professional and ethical standards in corporate governance, transparency and accountability.” China’s embassy in Rome had no immediate comment.

Additional reporting by Jamil Anderlini in Beijing

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