CIC says China should not be counted on to ease global economic crisis

Channel News Asia
CIC says China should not be counted on to ease global economic crisis
By Channel NewsAsia's Hong Kong Bureau Chief Roland Lim | Posted: 03 December 2008 1938 hrs

HONG KONG: China's sovereign wealth fund, China Investment Corp (CIC), said it lacks the stomach to invest in Western financial institutions after incurring steep paper losses in its recent investments.

The comment marks a new blow for ailing banks looking to CIC for a bailout. Last year, the sovereign wealth fund poured US$8 billion into stakes at Morgan Stanley and Blackstone.

With both counters collapsing amid the market turmoil, the fund is now staring at heavy paper losses.

Speaking at the Clinton Global Initiative Conference in Hong Kong on Wednesday, CIC chairman Lou Jiwei admitted that he has no confidence to invest further in foreign banks. He said the market is still volatile and government policy is inconclusive.

"I'm not brave enough to invest in financial institutions. I'll wait for more certain policies coming out from the various countries first. We have to wait for the time when there won't be more massive collapses of financial institutions," said Lou.

That being said, CIC is continuing to make investments overseas and looking to diversify geographically, especially in emerging economies. The fund manages about US$200 billion of assets and is the world's fourth largest sovereign wealth fund.

But CIC said it should not be counted on to ease the global economic crisis.

"Whether or not China is able to save the world, well actually, China cannot – China can only save herself because the scale of China is still rather small. Even though the population is huge, the scale of our domestic economy is not big enough. China is facing a lot of problems," Lou added.

China's official media supports the buying of more US bonds to avoid even worse losses to its huge forex reserves. The country is estimated to already hold between US$1 trillion and US$1.5 trillion in US debt securities.

Morgan Stanley economist Stephen Roach also predicted that the world will be drawn into a global recession for most of 2009, with the earliest recovery in 2010.

His advice is for Asian economies to restructure, so that they won't be so affected by external factors when the next global slowdown comes along.

"Take a look at Asia, (it's) more export dependent than ever before, dependent on demand from the developed world. Is this a region that's able to stand on its own if it has failed to develop its internal demand… as well as capital market institutions," questioned Roach.

Asian economies are largely dependent on exports for growth, especially to the US. The slowdown is hurting the region, with Japan, Hong Kong and Singapore already in recession.

- CNA/so/ls

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