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Tom Holland

Greece is a beautiful country, let down by truly ugly finances.
Last year, the government ran a budget deficit it estimates amounted to 12.7 per cent of the country's gross domestic product.
Others are less sanguine. Some European Union officials in Brussels suspect the Greek government is fudging its numbers and that the true size of its budget black hole was even bigger.
Either way, plugging the gap pushed Greece's government debt ratio to well over 110 per cent of GDP last year, worse even than budget basket cases like Italy.
Even worse, about 25 per cent of Greek government bonds are relatively short-dated, meaning the finance ministry needs to roll over an awful lot of debt this year.
It managed to issue Euro8 billion (HK$87.53 billion) worth of five-year bonds earlier this week, although only by paying a punishing 6.2 per cent yield. 
Even so, that leaves Athens still needing to sell a further Euro50 billion of debt this year, including at least Euro20 billion over the next few months.
With Greece's European partners muttering darkly that there will be no bailout, the Greek government is pinning its hopes on finding buyers among the reserve-rich central banks of Asia.
Finance Minister George Papaconstantinou is preparing to hit the road next month to pitch his next bond issue to investors in Hong Kong, Shanghai and Beijing. According to reports out of Athens this week, Greek officials are hoping to sell up to Euro25 billion of bonds to mainland investors, with the central bank, holder of US$2.4 trillion in foreign reserves, tagged as by far the biggest buyer.
There is no doubt Beijing could snap up the entire deal if it wants. On average, the central bank accumulated US$38 billion of foreign exchange reserves every month last year, equal to Euro27 billion at yesterday's exchange rate.
And reserve managers at the State Administration of Foreign Exchange would dearly like to diversify more of their holdings away from US dollar assets, so Athens is clearly hoping that a  chunk of euro-denominated debt bearing a considerable coupon will prove an attractive proposition.
But the Greeks may find their bonds tougher to sell in China than they expect. To paraphrase one recent analyst's comment, Beijing's reserve managers are in the business of ensuring return of capital, not return on capital.
In other words, the central bank looks above all to preserve the value of its foreign reserves, rather than to generate a high yield on them. And looking at Greece's financial situation, Chinese officials will have to wonder whether the buyers of Greek debt can be confident of getting their money back again.
Other investors are doubtful. As the first chart below shows, the cost of ensuring against a Greek sovereign default through the credit derivatives market has soared since the beginning of the year.
Most observers say the market is needlessly concerned. The conventional view is that, while Greece's European Union partners may talk tough, ultimately they would always step in to bail out Athens. The alternative would be to allow a default that could fatally damage faith in the euro and lead to an unravelling of the whole single currency.
But that may be misreading the situation. To secure European support, the Greek government is promising to reduce its budget deficit to just 3 per cent of GDP by 2012. Yet such drastic spending cuts may prove more than the public are willing to swallow. The country's farmers are already blocking major roads in protest.
If the European Union refuses to soften its targets for fear of giving its other Mediterranean members - the so-called PIGS, or Portugal, Italy, Greece and Spain - licence to blow out their  deficits, Athens may decide the conditions of eurozone membership are too onerous. In that case, a Greek default and devaluation could follow.
The chance may be relatively small, but Beijing will still have to weigh the danger against the dubious diplomatic rewards of bailing out the Greek finance ministry. Given the cautiousness of China's international financial officials, they may well decide the risk is one they are unwilling to run, at least not with anything like Euro25 billion.
Rusal was never going to be one investors could flip for a quick profit, but buyers must still have been horrified by the stock's 10.6 per cent fall on its trading debut yesterday. Still, any investors in the Russian aluminium giant looking for a silver lining can console themselves that Chinese competitor Chalco has slumped 13 per cent since Rusal completed is book-building last week. So, in relative terms, Rusal actually outperformed.



A difficult job to put lipstick on these PIGS