CIC chief outlines China’s global investment strategy

Reuters, BEIJING

Mon, Nov 12, 2012 - Page 15

China’s sovereign wealth fund will focus more of its US$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 (樓繼偉) 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 Corp (CIC, 中國投資公司) chief, speaking on the sidelines of the Chinese Communist Party Congress to choose a new leadership lineup, told reporters 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 US President Barack Obama, including his blocking of a privately owned Chinese company from building wind turbines close to a US military site and his challenge of Chinese auto and auto parts subsidies in a WTO case.

The US House of Representatives’ Intelligence Committee warned last month that Beijing could use equipment made by Huawei (華為), the world’s second-largest maker of routers and other telecommunications gear, as well as rival Chinese manufacturer ZTE (中興), the fifth-largest, for spying.

Canada has twice delayed a decision over whether to allow a US$15.1 billion bid by CNOOC Ltd (中國海洋石油), China’s top offshore oil and gas producer, for Nexen Inc, 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 IMF, 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 US$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.

Yet while Asia is a target, the region’s relatively shallow and underdeveloped capital markets make investments harder and prevent CIC from 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 the US and Europe 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 and 2009 global financial crisis.

“Infrastructure investment can boost economic growth and employment and in fact it is fiscally neutral,” said Lou, a former Chinese 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 eurozone 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.”