18th Party Congress

China's sovereign wealth fund to focus on Asia investments

Policy aims to counter perceived protectionism in West and boost exposure to regional growth

PUBLISHED : Monday, 12 November, 2012, 12:00am
UPDATED : Monday, 12 November, 2012, 7:27am

China's sovereign wealth fund would focus more of its US$482 billion firepower on Asia in a bid 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. He said the policy response to Europe's debt crisis was a reason to stay underweight on bonds and stocks there.

"There is a rise in protectionism in both trade and investment in some Western countries," said the China Investment Corporation chief, speaking on the sidelines of the 18th party congress.

"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.

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 favoured option for CIC, thanks to some of the fastest rates of growth and development, 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," Lou said. "That is very time consuming and we cannot really deploy that much investment capital into it."

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. 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 is fiscally neutral," said Lou, a former vice-minister of finance regarded by insiders as either a future finance minister or central bank chief.

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.

The fund suffered a 4.3 per cent loss on its international portfolio in 2011.