The 'Real' IMF? China to Buy Italian Sovereigns

♠ Posted by Emmanuel in ,, at 9/13/2011 10:47:00 AM
Rumours, gossip, innuendo in your window and out your window; such is the defining characteristic of modern debt crises. I suppose that when the US actually had money in its Treasury in the postwar period, it too elicited the expectation from others that it would bail out wayward countries. Now that the US has become the most wayward country in world history, the international community looks to China to fulfil the lender of last resort function in the community of nations.

To be honest, I am not convinced that China has recently bought oodles of Greek and Portuguese debt in quantities that materially improve their financial situations according to various rumours. But nevermind little ol' me for the latest news is that (surprise!) China is going to buy lots of Italian sovereign debt. However, to not bore us to death this time, there is a twist...that admittedly makes no sense to me. You see, Italian officials are supposed to be courting the Chinese Investment Corporation (CIC) to buy its sovereign debt. This makes next to no sense since sovereign wealth funds are usually designed to enhance yields on holdings by purchasing (1) higher-yielding, (2) private sector assets for (3) diversification. Buying Italian sovereigns may marginally meet the first requirement, but distinctly fails on (2) and (3).

Ah well, what does common sense have to do with rumours? On to the story:
Italy's Finance Ministry has held talks with China's sovereign-wealth fund and other Chinese officials in a bid to persuade Beijing to buy large amounts of Italian bonds, a person familiar with the matter said, as Rome searches for ways to meet its financing needs and pull the peninsula out of the euro-zone debt crisis...

Finance Minister Giulio Tremonti met with a delegation of Chinese officials last week—including Lou Jiwei, chairman of the China Investment Corp sovereign fund, or CIC—to discuss possible bond purchases by the fund, the person said. The talks were also attended by China's ambassador to Italy Ding Wei, officials from Beijing's State Administration of Foreign Exchage, or SAFE, and officials from the Cassa Depositi e Prestiti, an investment vehicle controlled by Rome, the person said.

So far, it is unclear whether the talks will lead to any big bond purchases by Beijing, according to the person. In 2010, the arrival of Chinese delegations in Greece and other debt-ridden European economies stoked investor hopes that Beijing would ride to the rescue. The highly touted Chinese investments, however, never materialized [my emphasis].
Why do people lap up these fanciful financial stories? I generally like to keep factual reporting separate from science fiction--though more than a few journalists have severe issues distinguishing between the two.

And no, don't count on China to *save* Italy.