Log in
Lost password
Become a member for free
Sign up
Sign up
Dynamic quotes 

4-Traders Homepage  >  News


Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 

China wealth fund eyes Asia "as Western protectionism rises"

11/10/2012 | 10:35pm US/Eastern

China's sovereign wealth fund will focus more of its $482 billion firepower on Asia in twin bids to beat a rise in protectionism in the West and boost exposure to rapid regional growth, chairman and chief executive Lou Jiwei said.

The man charged with stewardship of a slice of the world's largest store of foreign wealth lauded the British approach to overseas investment in public sector projects as one for the world to follow and said the policy response to Europe's debt crisis was a reason to stay underweight bonds and stocks there.

"There is a rise in protectionism in both trade and investment in some Western countries," the China Investment Corporation <CIC.UL> chief, speaking on the sidelines of the Communist Party congress to choose a new leadership line-up, told Reuters in a rare interview.

"As compared to other financial investors we feel that the scrutiny on us is a little more strict, because of issues like national security," Lou said, adding that while not a major issue yet, he detected rising concern among foreign regulators when CIC partnered with Chinese firms to make acquisitions.

Tensions between Beijing and Washington have recently ratcheted higher thanks to a series of trade actions against China by President Barack Obama, including his blocking of a privately owned Chinese company from building wind turbines close to a U.S. military site, and his challenge of Chinese auto and auto-parts subsidies in a World Trade Organization case.

The U.S. House of Representatives' Intelligence Committee warned last month that Beijing could use equipment made by Huawei, the world's second-largest maker of routers and other telecom gear, as well as rival Chinese manufacturer ZTE, the fifth largest, for spying.

Canada has twice delayed a decision over whether to allow a $15.1 billion bid by CNOOC Ltd, China's top offshore oil and gas producer, for Nexen Inc <NCY.TO>, despite shareholders giving it their backing.

Having tackled some concerns about acquisitions by sovereign wealth funds, such as CIC, in 2008 through the adoption of guidelines brokered by the International Monetary Fund, known as the "Santiago Principles", governments worldwide now bristle at the rising number of investment bids for strategic assets made by state-backed firms that fall outside that framework.

Lou said CIC would not change its strategy of partnering with Chinese firms simply to assuage concerns of foreign regulators - particularly if such a partnership presented the best-value proposition to the fund, which is mandated to boost returns on a substantial chunk of China's $3.29 trillion stash of foreign reserves.


"We would avoid investing in countries that do not welcome us. There are other places to invest," Lou said.

Asia is a particularly favored option for CIC, thanks to some of the fastest rates of growth and development in the world - which are themselves levered to China's own economic dynamism.

But while Asia is a target, the region's relatively shallow and under-developed capital markets make investments harder and prevent CIC investing as much as it would like.

"We would have to do direct investment projects one by one. That is very time consuming and we cannot really deploy that much investment capital into it," Lou said.

For now, liquidity makes Europe and the United States CIC's markets of choice for investments in publicly traded securities, while the UK is the fund's top infrastructure pick.

"We like the UK. It is very open on its infrastructure sector," he said, adding that Britain's use of private capital to build public sector assets was a model for other developed economies to follow - particularly those struggling to recover from the effects of the 2008-09 global financial crisis.

"Infrastructure investment can boost economic growth and employment and in fact it is fiscally neutral," said Lou, a former vice minister of finance regarded by Beijing insiders as either a future finance minister, or central bank chief.

Lou said the balance between growth and fiscal rectitude was key to Europe's ability to escape from a debt crisis that has dragged on for more than three years.

"Although people in Europe have agreed that they need a combination of growth and consolidation, in fact these two aspects are contradictory to each other and Europe hasn't really thought out a way to move forward," he said.

"The risk of the euro zone falling apart has now dropped to less than 20 percent, but it is still there. To look on the bright side, now Europe has an agenda compared to a while ago when there was only babbling."


That overhanging risk and the inability to persuade investors that a recovery plan is firmly in place are key to CIC being underweight on European bonds and equities, Lou said.

"That demonstrates somewhat our lack of confidence," he said. He added that the fund was on the lookout for assets in Europe's real economy - particularly among manufacturers.

"We believe that the manufacturing industry in Europe is still quite competitive and we believe that the European economy will recover some day," Lou said.

But European banks and peripheral euro zone sovereign debt were definitely off his shopping list.

"We dare not touch the banking sector there because we do not know how many more problems are there," he said.

"We would not buy peripheral country bonds because they do not fit our risk/return profile," Lou said. "Most importantly, the risk and returns of these bonds are determined by politics and it is very hard for us to make a judgment (on them)."

Judgment was becoming more important all round, Lou said, pointing out that easy pickings for investors had disappeared since 2009, when asset prices collapsed as the global financial crisis raged and buying cheap was an obvious strategy.

"We have to use more precaution and really watch the risks and how well the companies operate," Lou said.

But a tougher approach to investment management appears to be paying off on CIC's bottom line.

The fund suffered a 4.3 percent loss on its international portfolio in 2011 as total profits fell 6.1 percent on the year to $48.4 billion. Lou is confident that won't be repeated.

"We expect to book no loss by the end of this year. We are pretty satisfied with the performance so far, but we really cannot predict that it will be as good at the end of this year as it is today," Lou said.

"Nobody can predict what happens by the end of this year unless they liquidate all of their portfolio and lock in the returns. But nobody would do that."

(Editing by Nick Macfie)

By Nick Edwards and Kang Xize

React to this article
Latest news
Date Title
11:58a NK LUKOIL PAO : LUKOIL's associated petroleum gas starts flowing to Gazprom-owned Sosnogorsk GPP
11:58a UTI WORLDWIDE : Rosen Law Firm Announces Investigation of UTi Worldwide Inc. Concerning its Proposed Sale to DSV
11:58a AFFLINK : 's Free ELEVATE(TM) Software Shines at 2015 CSCMP Conference
11:58a OWENS & MINOR : Plans to Release 3rd Quarter 2015 Financial Results on Tuesday, October 27th; Management Conference Call Set for Wednesday, October 28th
11:57a China concerns leave central banks in difficult spot
11:56a WEIFA ASA : Aqualis ASA: Change in Board of Directors
11:56a GAZPROM PAO EDR : LUKOIL’s associated petroleum gas starts flowing to Gazprom-owned Sosnogorsk GPP
11:56a HUDSON BAY : Saks Fifth Avenue Signs Lease for a Location in Greenwich, Connecitcut
11:56a ICSID CENTRE FOR SETTLEMENT OF INV : The ICSID 2015 Annual Report Published
11:56a HUDSON BAY : Saks Fifth Avenue and Legendary Parisian Restaurant L’Avenue Announce Partnership
Latest news
Hot News 
6D GLOBAL TECHNOLOGIES : SIXD Levi & Korsinsky, LLP Announces the Commencement of an Investigation Involving Possible Securities Fraud Violations by Certain Officers and Directors of 6D Global Technologies, Inc.
ADGORITHMS : Annual Earnings To Miss Expectations On Market Disruption
UTi Announces Agreement to be Acquired by DSV in Transaction Valued at $1.35 Billion
INSPIRED ENERGY : Shortlisted in the Energy Awards 2015
HML : Results of AGM (2)
Most Read News
01:39a Amal is a real jewel
12:45a MINISTRY OF FINANCE OF REPUBLIC OF INDONESIA : Government Decreases Oil Fuel, Gas and Electricity Prices through 3rd Economic Policy Package
10/08 DAIRY AUSTRALIA : New RD&E model to drive Victorian dairy farm profitability
12:01a To Defend Payments Businesses, Banks Must Focus on Customer Pain Points
Most recommended articles
11:57a China concerns leave central banks in difficult spot
11:55aDJBank of Canada Survey Suggests Business Sentiment Remains Tepid
11:43aDJGLENCORE : Copper, Zinc Rally on Glencore Supply Worries
11:41a Wall Street up; S&P on track for best week in 2015
11:38aDJU.S. Corn, Soybeans Lower Ahead of Crop Report