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China in Talks With Italy as Lender

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As Greece nears default and Italy struggles to keep from losing control over its own debt problems, the latter has been engaged in talks with China over the possibility of asset sales to the Asian nation.

Bloomberg reported Tuesday that according Filippo Pepe, the spokesman for Italian Finance Minister Giulio Tremonti, Tremonti met with Chinese officials in Rome earlier in the month. Under discussion was the possibility of Chinese investment in Italy, in other areas than bonds. While Chinese Foreign Ministry spokeswoman Jiang Yu did not refer specifically to Italy, when asked about the possible purchase of Italian assets, she said Europe is one of the country’s main investment targets.

Bonds had been the topic of discussion at one point, however, according to Reuters, which cited a Financial Times report that Rome had asked Beijing to purchase “significant” amounts of bonds. That did not happen. A Tuesday bond auction saw little demand and high premiums, with investors showing reluctance to sink more money into the country’s debt, and no white knight riding to the rescue.

China has not sold off, either, however, as many others have, according to a European Union (EU) source in the report, who was quoted saying, “They are not exiting the market. They are among the few who are still there. We are relying on the ECB and the Chinese.” Indeed, the country hopes to benefit from largesse to troubled European nations and perhaps offset calls for it to allow its exchange rate to appreciate more quickly.

Nicholas Zhu, head of macro-commodity research for Asia at Australia & New Zealand Banking Group in Shanghai and formerly an economist at the World Bank, was quoted in the report saying, “It’s a clear pattern of China’s intention to help stabilize the euro area. The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community.”

Premier Wen Jiabao, who will speak at the World Economic Forum in Dalian, China on Wednesday, could discuss the European debt crisis although perhaps not China’s possible role in assisting the euro zone. Economists’ expectations about the speech may not be high, however. Tim Condon, head of Asia research at ING Groep NV in Singapore, was quoted saying, “I don’t expect him to say that China will underwrite the euro zone, hopes for which have episodically boosted prices of risk assets this year. I expect he will utter comforting generalities about underlying economic strength and ability to resolve the debt problems.”