September 13th, 2011
02:55 PM GMT
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Hong Kong (CNN) – It’s a different world when a European country, in this case Italy, can’t rely on its own neighbors to help with financial support. It’s a different world when it can’t even rely on the world’s biggest economic power, a still sluggish United States, to help prop it up. And you know it’s a different world when Europe’s third-largest economy calls out to the cash-rich People’s Republic of China for help.

But that is what appears to be happening.

Italy has basically invited China to make “significant” purchases of bonds and other assets to help the European country out of its financial debt crisis. And the interesting thing is that China could do it – if it wanted. And in fact, it’s also come to light that Chinese investors and Italian government officials have made trips to each other’s capitals for “talks” over the past few weeks.

Giulio Tremonti, Italy’s Finance Minister, led a delegation to Beijing recently. He met with officials of China’s State Administration of Foreign Exchange, or SAFE. He also met with investors from China Investment Corporation, also known as CIC.

Lou Jiwei, Chairman of CIC, led his own investor group to Rome the week after, according to the FT and Wall Street Journal. What’s so special about CIC? It is China’s largest sovereign wealth funds with assets of nearly $410 billion. Set up in 2007, its purpose is to invest some of China’s $3.2 trillion of foreign currency reserves.

Now compare that surplus with Italy’s debt hole: $2.3 trillion. That number is more than the combined debt of Portugal, Ireland, Greece and Spain. As for its debt-to-GDP ratio, Italy’s is a whopping 120% – second only to Greece’s 140%.

So would China really put its money into Italy? Or would it actually take a wait-and-see approach?

Right now, there’s no indication that any agreements have been inked and China has not specifically mentioned anything about talks with Italy. Still, a China Foreign Ministry spokesperson did touch on the general financial health of Europe at a press briefing earlier Tuesday.

"China is confident about the European economy and the euro. Europe will continue to be China’s main investment market. We would like to expand financial and economic investment cooperation to address the financial crisis."

But even if CIC did want to invest in Italy, it might not be able to. Just a few months ago, the sovereign wealth fund revealed it only has about 4% of its total assets in cash. As it turns out, it may be cash-rich but not liquidity-rich. Its money is mostly tied up in North America, Asia-Pacific and Europe.

Still, China has long been trying to increase its investment presence abroad, as well as to diversify away from the U.S. dollar. And Italy’s call for help may be that door that Beijing will want to walk through to Europe.



soundoff (16 Responses)
  1. Steve Thompson

    There is no way that the EU, ECB, IMF or any combination of the three, will have the ability to bail out Italy.

    Italy, the holder of the world's third largest debt in nominal terms, has the world's eleventh highest debt-to-GDP ratio and is unlikely to reduce its debt-to-GDP ratio to less than 115 percent even with massive cuts to its annual deficits as shown here:

    http://viableopposition.blogspot.com/2011/07/italy-and-their-debt-bronze-medal.html

    Should the Eurozone economy contract as it appears to be doing, Italy will most likely be forced to default, an action that would heavily impact the world's sovereign debt market.

    September 13, 2011 at 3:07 pm |
  2. aqua

    Pakistan flood, China pledged 4.7 million, Iran pledged 100 million

    China is only interested in Euro to diversify her exposure to the weakening Dollar, not altruism

    September 13, 2011 at 4:41 pm |
  3. Canuck Report

    Canadians are being hit now too

    U.S. STYLE DISPARITY: Income gap between rich and poor rising fast in Canada ...

    RECESSION: Canada could be first to tank ...

    SINKING: As Canadians' net worth decreases, debt levels soar ...

    http://canuckreport.ca

    September 13, 2011 at 5:30 pm |
  4. Girl

    Just what we need!!! aah

    September 13, 2011 at 9:27 pm |
  5. Mike Malkov

    Ferrari. Made in China CE :)

    September 13, 2011 at 10:08 pm |
  6. jikoy

    It's time for the world to learn, the "secret code" can achieve a 90% accuracy rate within the oil market. What I'm trying to do is wake you up so that you can see that you can make as much money as you want within the oil market by using the "secret code". So here is the proof, shown live with NO POSSIBLE WAY to fake!! Google Oil Trading Academy to learn more.

    September 14, 2011 at 8:10 am |
  7. abhilash

    Itz not helping itz investing.....and china will take back by selling itz stupid undervalued product all over europe...and again dept rise more....this cycle will continue..

    September 14, 2011 at 11:57 am |
  8. AhPei

    My guess is China may offer to buy some Italian state assets, or expand trade ties in a way that benefits both. As for buying italian bonds? Forget it! That's money down the sewers.

    September 14, 2011 at 2:50 pm |
  9. A Little Bird

    We don't want risky Italian bonds. But we would like to buy your oil and gas companies, and maybe a big piece of Italy.

    September 14, 2011 at 3:11 pm |
  10. marinada

    Italy, you do not know the Chinese Communist Party, Mr Berlusconi, it is worse than you sophistication.

    September 14, 2011 at 9:02 pm |
  11. lejaune

    The advanced capitalist world is asking the backward Communist country to save its economy. What's wrong with this picture. Was Karl Marx finally vindicated?

    September 15, 2011 at 6:44 pm |
  12. Christianna

    Italy, entrust all your gorgeous church buildings to China since China has more number of real Christians than all Europe combined.

    September 16, 2011 at 10:56 am |
  13. Paul /from BC Canada

    Italy is broke and in denial. A few tourists will not save her, neither will wine and cheese. Sell it all to the Chinese...everybody else has sold out. The thing about Europeans (and both my parents are) is that they think that it is their GOD given right to live the life of the rich and famous. ie: my 43 year old niece in Padua still brings her laundry home to Mama.

    September 18, 2011 at 10:36 pm |
  14. patrick A.

    No wonder these BANKRUPT NATO NATIONS are HELL BENT on STEALING that Libyan Oil.

    September 19, 2011 at 7:52 pm |
  15. Real Laplaine

    I know it sounds so passe, but I guess Italy has forgotten, again, that they are inviting a communist regime right into their bedroom. Not very concerned about who they support and who they sleep with in this matter.

    October 27, 2011 at 7:39 am |
  16. Derrick

    Waste of time. Don't think China can help. Comparing gross numbers is meaningless...for an apples to apples comparison, look at GDP per capita:
    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
    I think Italy's is around 29000 while China's is around 7400...that means Italians are at least 4 times wealthier than Chinese.

    October 27, 2011 at 5:40 pm |

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