China's sovereign wealth fund wants to invest in improving neglected U.S. and European roads and other infrastructure to spur global growth, the fund's chairman said in comments published Monday.
The announcement reflects a shift in strategy for the $410 billion fund, which was created in 2007. Until now, it has limited its investments mostly to small stakes in publicly traded companies to avoid stirring political opposition overseas.
China Investment Corp. wants to begin in Britain by teaming up with fund managers or investing directly in infrastructure projects, Lou Jiwei said in a commentary in London's Financial Times newspaper.
"China is keen to get involved" in improving U.S. and European infrastructure, which "badly needs more investment," Lou wrote. He cited energy, water, transport, digital communications and waste disposal but gave no indication of possible projects or the size of Chinese investment.
Some commentators in both Europe and China have suggested Beijing might use its $3.2 trillion in foreign reserves to gain leverage on political or trade issues at a time when other governments urgently want investment.
CIC was created to invest abroad in hopes of earning a better return on China's foreign reserves, the bulk of which are in U.S. and European government bonds. It says investments are made on commercial rather than political grounds.
The move into infrastructure probably reflects CIC's commercial views, rather than those of the government, said Citigroup economist Minggao Shen. He said it could help CIC earn a more stable profit and reduce Beijing's exposure to U.S. and European government bonds amid volatile markets.
Some Chinese commentators have called for Beijing to reduce its exposure to the financial woes of Western governments by buying fewer bonds. China is Washington's biggest foreign bondholder, with $1.15 trillion in Treasury debt as of September.
"There is a general thought that maybe China should not invest in U.S. Treasurys or European sovereign bonds. Instead, why can't we hold direct assets in the economy?" Shen said.
By investing in individual projects, he said, "you don't have to depend on government guarantees and it should be affected less by the sovereign debt crisis."
CIC faced criticism over the performance of investments made just as the financial crisis was developing. But its results have improved and the fund reported an 11.7 percent return on assets last year.
Lou stressed that CIC is a commercial investor and wants to make a profit.
"CIC believes that such an investment, guided by commercial principles, offers the chance of a win-win solution for all," he wrote.
Lou gave no indication in which other countries the CIC might invest but cited an estimate that the United States needs to spend at least $2.2 trillion in infrastructure repairs or rebuilding.
"Free of the inflationary pressure that afflicts many emerging economies, the U.S. and Europe should make substantial investment," he said. "We cannot count on developing countries to deliver a stable economic recovery on their own."
China Investment Corp.: http://www.china-inv.cn
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