Where’s the euro zone’s white knight? Not in China.

November 10, 2011, 11:55 PM UTC

FORTUNE — It was around this time last year when Europe’s ongoing debt crisis unexpectedly drew the investment savvy of China. Officials from the world’s second-largest economy swooped in, promising to back debt-troubled Spain by signing $7.3 billion in deals that spanned investments in everything from banking to energy. This followed China’s pledge to back Greece, where officials signed off on what Greeks at the time called the biggest single investment by China in Europe.

All this implied that China was willing to come to Europe’s rescue if things took a turn for the worse. Needless to say, things are moving in that direction, as the region’s debt troubles spread beyond Greece and into much bigger economies – namely, Italy. On Wednesday, yields on Italian bonds surpassed 7%, approaching levels that previously sent other euro zone nations scrambling for bailouts. Prime Minister Silvio Berlusconi’s insistence on elections instead of an interim government threatened to prolong the instability and fanned fears of a split in the euro zone.

The developments, analysts have suggested, signal a dangerous new phase in the euro zone crisis.

But it seems as though Europe’s white knight is far from sight. And as the debt crisis continue to roil markets, sending stocks on Wall Street tumbling to their worst finish Wednesday in nearly three months, it looks less likely that China will step in in any big way.

Last month, European officials traveled to Beijing to persuade China’s leaders to beef up investments in the European Financial Stability Facility, established last year to sell bonds to finance loans for distressed euro nations. The fund’s powers were recently expanded, but many still think it needs to be much bigger to rescue larger economies like Italy, which could very well need a bailout any day now.

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For now at least, China has left Europe dealing with its own debt woes – a marked reversal of the bold backings of Greece and Spain months earlier. Admittedly, China can’t single-handedly save the euro zone, as the region’s underlying debt problems are also deeply structural.  But the East Asian giant is one of the few nations well positioned to play a major role –China holds the world’s largest foreign exchange reserves at $3.2 trillion.

There are several reasons why China remains cautious, but much of it seems shortsighted.

For one, as highlighted in The Christian Science Monitor recently, China would probably want more influence on economic policy over euro zone nations – certainly a scary thought, given how structurally flawed many of the peripheral economies are. Even if China somehow works out a very unlikely deal to have more say over policy in exchange for rescue funds, this would likely turn out to be a nightmare. After all, having too many voices and not enough strong leadership is one of the chief reasons why officials in Europe haven’t been able to act quicker.

China’s pullback could also be a result of a decision that investing in Europe might be too risky and uncertain, as the Monitor has also pointed out. That’s something obviously irking most other investors, but especially China as its sovereign wealth fund has come under scrutiny. During the global financial crisis, overseas investments suffered large losses and so Beijing is under pressure to make wiser investments. It could also be that China is waiting for European officials to grant it political concessions, which Eurogroup chairman Jean-Claude Juncker has said is unlikely to happen.

Whatever its hold-ups, China has more to gain than lose by playing a bigger role in the euro zone’s rescue.

The area is China’s largest export market, so its own economic health is at stake as the ongoing debt crisis continues to erode growth in the euro zone. What’s more, as China expert Barry Naughton from the University of California in San Diego pointed out earlier this year, helping Europe could boost China’s global image. The country has long been criticized for artificially undervaluing its currency and holding vast foreign currency reserves. Giving up some of those reserves to help Europe, and by extension, the world at large, could potentially lift pressures off China.

And while Chinese aid could easily incite European opposition (as was the case last month when French President Nicolas Sarkozy called on China to help), the euro zone may be able to avoid something far more disastrous if only it were more open to its eastern neighbors. After all, the European Central Bank has repeatedly said it has no mandate to act as the lender of last resort and has refused to print money. The EU bailout fund is clearly inadequate,while the region’s finance ministers have presented no clear plans on how to make it bigger.

If China doesn’t step up, it’s hard to think who could.