China's CIC says cuts Europe market exposure-paper

By Staff Reporter

Jun 07, 2012 11:03 AM EDT

China's $410 billion sovereign wealth fund China Investment Corp has cut its stock and bond investments in Europe as it sees rising risks of a euro zone breakup, the fund's chairman was quoted as saying in an interview published on Thursday.

Lou Jiwei was quoted as saying that China was also unlikely to buy common euro zone bonds, should they eventually be sold as part of a resolution of the European debt crisis, as "the risk is too big, and the return is too low".

Lou told the Wall Street Journal in an interview that "there is a risk that the euro zone may fall apart and that risk is rising." in remarks that marked the first time Beijing has publicly admitted to reducing investments in the financial markets of Europe, China's largest export market.

"Right now we find there is too much risk in Europe's public markets," Lou said.

Statements from China's political leaders have previously been supportive of efforts by Europe to resolve a crisis heading towards its fourth year, though soothing words have stopped short of offering commitments of injections of cash to help shore up banks and sovereign borrowers.

Lou's comments came as European Union officials raced to find ways to rescue Spain's debt-stricken banks and ward off a crisis in Europe's fourth-largest economy, though a successful Spanish debt sale on Thursday offered some reprieve.

Lou did not detail the extent to which the fund had reduced its European investments, but the paper reported him as saying that CIC had scaled back exposure across public asset markets.

He added that CIC was continuing to invest in Europe through private equity and direct holdings, including infrastructure assets.

Indeed, CIC has repeatedly voiced its interest to buy European infrastructure of late, in a stark contrast to the way Beijing keeps mum over whether it would contribute to a European bailout fund, or buy common euro zone bonds should they be sold.

But a senior CIC official said last month that China faces "invisible impediments" to investing in some parts of Europe, with Europeans nervous about letting it move into sectors such as "nuclear power".

That was after CIC said in November it is keen to invest in the ailing infrastructure of western nations, especially Britain.


As the owner of the world's largest stock of foreign exchange reserves at $3.3 trillion, Beijing has been a port of call for euro zone officials seeking investors who can help the bloc survive its debt quagmire.

But CIC's gloomy appraisal of Europe may douse hope that China would join other rich nations in helping the bloc fight its crisis by providing funding to its debt-stricken banks.

China is not cautious across the board for all overseas investments, however, with a separate survey on Thursday betraying a preference for physical assets.

The survey showed China's investments abroad accelerated to $21.4 billion in the first quarter this year, with assets in the resource sector and South America the most sought-after by state-backed buyers.

The survey showed Europe was the most popular destination for Chinese overseas investment outside of the resource sector, home to 83 percent of the non-resource deals in the first three months.

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