Italy Turns to China for Help in Debt Crisis

The Financial Times reports that Italian officials visited Chinese investors in Beijing in the hope that cash-rich China can help Italy’s debt crisis:

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 ’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.

And from Bloomberg, the speculation of substantial Chinese investments in Italy reversed losses today in the U.S. stock market as investors were comforted by the news:

U.S. stocks rose, reversing losses in the last 90 minutes, as concern about Europe’s crisis eased following a report that Italy was in talks with China about possible investments. Treasuries fell after the 10-year note yield reached a record low. The euro pared losses.

The Standard & Poor’s 500 Index rose 0.7 percent to 1,162.27 at 4 p.m. in New York. The 10-year note yield increased three basis points to 1.95 after touching an all-time low of 1.877 percent. The euro was little changed at $1.3662 and was down 0.4 percent versus Japan’s currency after slumping as much as 2 percent to a 10-year low of 103.9 yen. Silver and gold fell more than 2 percent to lead commodities lower.

Stocks recovered, with the S&P 500 erasing a 1.6 percent drop, after the Financial Times reported that Italy’s government was in talks with China Investment Corp. about “significant” purchases of Italian bonds and investments in strategic companies. Earlier losses were triggered by concern Greece was moving closer to default and a surge in yields at an Italian bond auction.

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