Italy admitted yesterday that its Finance Minister met the head of the biggest Chinese sovereign wealth fund CIC last week, as the government looks desperately for buyers of its debt bonds.
But buyers took a hard line when Italy placed bonds worth close to €6.5 billion yesterday, demanding record high returns for financing the hugely overburdened public finances.
The outcome of the bond auction showed a marked lack of investor confidence in Italian debt, which has been supported for the last six weeks by crisis purchases on the secondary market by the European Central Bank.
A ministry spokesman said that Finance Minister Giulio Tremonti had met a Chinese delegation in the Italian capital last week. The Chinese side includes Lou Jiwei, the head of the China Investment Corporation, the spokesman said without giving details.
Reports of the meeting, assumed on financial markets to be a pitch to obtain Chinese support for Italian bonds, pushed up stocks on Wall Street late on Monday, but the effect was short-lived and European markets fell again in morning trading yesterday.
Italian newspapers have reported that until now, Mr Tremonti was reluctant to turn to China for help, fearing that this was a step towards inappropriate Chinese influence in Italian affairs.
The delegation also met representatives from the state-controlled CDP which manages funds destined for investment in “strategic” Italian companies.
“China has a lot of assets in dollars, it is now looking to diversify and is very interested in Italy,” Giuliano Noci, economics professor at Milan’s business school MIP, said.
“China is interested in the family jewels: it wants to invest in the environmental sector, in new technologies and particularly in fashion and household design,” he said.
The fact that China’s ICBC, the world’s biggest bank by market value, opened branches in five European countries including Italy this year, it is a sign of Beijing’s “willingness” to invest, he added.
In August, the head of the Italian Treasury, Vittorio Grilli, travelled to Asia to meet investors over the possible purchase of Italian bonds.
Grilli visited China, Hong Kong and Singapore to meet sovereign wealth funds and private investors. China has been working to boost market confidence in Europe in countries such as Greece, Spain or Portugal.
Yin Zhentao, economist at the Chinese Academy of Social Sciences, told AFP that a move by China to buy sovereign bonds could see European countries open up more to Beijing “in other areas such as trade and investment.”
But a temporary drop in Italian bond interest rates – driven by the European Central Bank’s intervention on the bond markets at the beginning of August – was reversed as anxiety on the markets drove rates up again.
Italy’s successful placement of three-month and 12-month bonds to raise €11.5 billion on Monday was heavily overshadowed by high interest rates.
The placement of five-year led to yields soaring to a new record high level of 5.6 per cent.
And although the benchmark FTSE Mib opened with a gain yesterday by mid-morning, it was showing a loss.
“The news of China’s possible investment in Italy is by no means enough to calm the markets,” said Mr Noci. “They are schizophrenic. Any slight rumour sees stocks jump or fall a great deal.”