CIC president cautious but warming to US

Head of China's sovereign wealth fund says US economy is more dynamic than Japan or Europe

PUBLISHED : Thursday, 07 March, 2013, 2:57am
UPDATED : Thursday, 07 March, 2013, 6:17am

China's US$500 billion sovereign wealth fund is more optimistic about the United States economy than those of Europe and Japan, although it is generally cautious about the outlook for major economies.

"There are many things to be cautious about and many things that need to be changed," Gao Xiqing, the president of China Investment Corp, said on the sidelines of the National People's Congress yesterday.

A prudent stance was appropriate when fiscal and financial policies on the heels of the global financial crisis and Europe's debt crisis had yet to take effect in leading economies, Gao said.

For example, regulators launched many draconian measures affecting the operations of financial institutions after the 2008 financial crisis, he said. The structure and products of the financial industry were being changed, but very few people could map out clearly the direction of the changes. 

Gao said CIC did not face pressure from the central government to pursue short-term returns, as its performance was evaluated only every 10 years.

"We are a truly long-term investor," he said. "We don't have any pressure to produce a certain amount of money every year."

The fund - set up six years ago to invest China's wealth overseas - has achieved since its inception a 5.03 per cent annualised return, which was above its target of 2 per cent higher than average consumer inflation in 18 countries, he said. The fund's investment return was 10.6 per cent last year.

Compared with Europe, the US seemed to be on a better route, because "it is much more self-contained, has a different system and it's easier to implement certain economic and fiscal policies from the top down", Gao said.

"If you look at policies, even policies towards labour, social policies, tax and other issues, the US seems to be more dynamic."

In the European Union, it was very difficult to get all the 27 member countries to agree on anything, especially when a major economic crisis hit, he said.
CIC was "a little more cautious" about Japan, which is engaged in a dispute with China over the Diaoyu Islands.  

The Japanese government, which has undergone frequent reshuffles, signalled last month it would depreciate the yen to stimulate the economy after two decades of stagnation.

"As a potential investor and an observer, we watch [Japan's] policies very tentatively," Gao said. "In the past five to six years, it's not been an easy market to invest in for a long-term investor."

Gao, a Duke University Law School graduate, returned to China in 1988 after working as an associate at a Wall Street law firm. He played a key role in drafting China's securities transaction law and establishing the securities regulatory body. In 2007, he was named president of CIC.