China wealth fund pivots to Asia

Tom McGregor

Western economies are struggling to overcome a sovereign debt crisis in Europe, a fiscal cliff in the United States, along with rising trade protectionist sentiments. Dismay appears to have replaced hope with no clear-cut solutions apparent in the foreseeable future.

Despite gloomy economic conditions, many nations in the Asia-Pacific region maintain stable growth rates. Accordingly, the China Investment Corporation, or CIC, has announced plans for more investments with neighboring countries.

"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 growth, chairman and chief executive Lou Jiwei said," according to Fox Business.

It added, "the man charged with stewardship of a slice of the world's largest store of foreign wealth lauded the British approach to overseas investments 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."

The approach is simple: "We would avoid investing in countries that do not welcome us. There are other places to invest." Throwing more money at Europe and the US has not reduced trade barriers enacted by Western governments.

While the West had faced soaring debts, Beijing stood tall by buying more bonds and debt from Europe and North America. Did they respond with gratitude? Perhaps not, let's cite a few examples:

President Barack Obama signed an "Executive Order" to block a privately owned Chinese company from manufacturing wind turbines near a US military site in Oregon. The US raised tariffs to as high as 250 percent on Chinese-made solar panels.

Canada has twice delayed a judgment over whether to permit a $15.1 billion bid by CNOOC (China's leading offshore oil and gas producer) for Nexen, although its shareholders have voted in favor of the deal.

The International Monetary Fund adopted guidelines, known as "Santiago Principles" that discourage the CIC to make investment bids in partnership with assets from State-backed firms.

Despite such obstacles, Lou expressed no regrets.

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

So what will be the main priority for CIC's future overseas investments? China's wealth fund would focus on infrastructure projects with its Asian neighbors.

"From the perspective of investments, our job is to support neighboring countries to develop industries that are complementary to China's growth," Lou told Xinhua. "We hope a stronger Chinese economy can benefit our neighbors."

CIC emphasized long-term growth with these investments rather than continue to rely on more risky and volatile short-term day trading of stocks and bonds in the stock exchanges of Europe and the US.

China's wealth fund would remain a large stakeholder of Chinese companies as well as continuing to support the four biggest Chinese State-run banks.

"By the end of June, Central Huijin invested 964.46 billion yuan ($154.56) in State-owned financial institutions, Mr. Lou said in the report," according MarketWatch of CBS News.

CIC's Asian investment strategy could bring major dividends in the long-term, since it could fund "as much as 50 percent" of a particular project to help the continent enjoy more sustainable development.

In the past few years, new global economic and diplomatic trends have emerged. A shift of power and fortunes has been blowing from the West towards the East. China has experienced a remarkable rise of annual GDP growth rates.

Asian neighbors can reap more rewards from China's rise as the CIC looks to pivot its overseas investments to Asia.

The views do not necessarily reflect those of China Daily.

McGregor@chinadaily.com.cn

 

Tom McGregor's previous articles:

Daunting challenges ahead for Chinese solar companies

Drug makers look East for cooperation

Chinese eyes sparkle over silver

Germany opens doors for Chinese workers