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Report: China has cut holdings of European assets

June 7, 2012

SHANGHAI: China’s sovereign wealth fund has cut its European assets amid rising risk of a eurozone collapse, the fund’s chief told the Wall Street Journal in an interview published today.

Lou Jiwei, chairman of the China Investment Corp (CIC) which manages the nation’s US$410-billion sovereign fund, told the newspaper that there was growing risk of a break up of the eurozone.

“There is a risk that the eurozone may fall apart and that risk is rising,” he said.

CIC had already scaled back its holdings of stocks and bonds across Europe and its exposure to “peripheral countries”, Lou said, but did not name them.

“Right now we find there is too much risk in Europe’s public markets,” he said.

The sovereign wealth fund manager was also unlikely to invest in common eurozone bonds aimed at raising fresh debt funding for the troubled bloc, which was proposed by France and supported by some other eurozone states.

“Europe hasn’t formed necessary fiscal discipline and hasn’t got the right policies in place,” Lou said, adding such bonds were unsuitable for China.

“The risk is too big, and the return too low,” he said.

Lou said that the fund was still looking for overseas investments, but favoured emerging markets over developed countries.

He expressed confidence in China’s economy, despite a slowdown in growth, and urged Beijing to undertake financial reforms such as making its currency freely convertible, though after the current crisis.

In January, CIC acquired 8.68% of British utility company Thames Water – the largest water and sewage service provider in Britain – for an unspecified price.

CIC was established in 2007 to invest some of China’s massive foreign exchange reserves, the world’s largest at US$3.31 trillion by the end of March, on the global financial markets.


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