09/13/2011, 00.00
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The “opportunities” and risks of Beijing’s purchase of Italian debt

Two economists talk about a report in the Financial Times to that effect. “It’s nothing new. China has been looking at our market for some times,” says one. “It is a warning to the UCB. If it buys our debt, someone else will be the big player,” says d’Orlando.
Rome (AsiaNews) – China’s purchase of Italian public debt “is nothing new. It should not cause any alarm. Beijing has been buying Italian bonds for quite some time,” an Italian economist told AsiaNews. “Of course, if it should turn out that it holds 4 per cent of Italian debt that would be news, good news that is,” he added. The economist entertains cordial relations with Beijing and Chinese businessmen.

According to the Financial Times, China holds about 4 per cent of Italy’s € 1.9 trillion debt (US$ 2.6 trillion). Citing Italian sources, the newspaper said that the recent visit by “Lou Jiwei, chairman of China Investment Corp, one of the world’s largest sovereign wealth funds” was a sign of China’s interest in Italian bonds.

In his visit to Italy (which follows a visit to Beijing by the head of Italy’s treasury, Vittorio Grilli), Lou held talks with Italian Economy Minister Giulio Tremonti and representatives of the Cassa Depositi e Prestiti (Deposit and Loans Bank), during which Tremonti negotiated the mass purchase of Italy’s public debt even though he expressed reluctance for what he once described as “reverse colonisation”.

“To talk about colonisation in today’s world and with the existing international financial system is absurd,” an economist told AsiaNews. “Tremonti knows it and perhaps sought a valid alternative to the usual buyers. The collapse of the eurozone or the default of some European nations would be hard blow to Beijing. An ‘international governance’ espoused by some governments would be even worse. This is why the purchase is going ahead.”

According to Maurizio d’Orlando, an economist and economic commentator for AsiaNews, “this is not surprising. What the Italian government wants is simple but misconceived. By leaking the information, Italy has for all intents and purposes let the European Central Bank know that it wants Europe to buy Italian public debt. If the ECB does, Italy then would have more buyers lined up; in this case, China.”

Beijing “is trying to do with Europe what it has done with the United States,” d’Orlando explained. “Since it cannot move away from an export-driven economy, and continues to hold the yuan below its real value, it must prop up export markets for its own goods. So far, the Old Continent has defended itself with import rules and non-tariff barriers, like quality requirement on imported goods”.

“What China is doing is something else,” d’Orlando noted. “It wants to turn the euro into an international reserve currency to counter the dollar. However, this is a dangerous policy, for Europe as well. It could increase the EU’s trade deficit with China, which until recently, was not very big. This can be inferred from the fact that the Chinese exchange rate is lower than the rate that the one based on the purchasing power parity, which is to the advantage of Chinese exporters.”
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