Tuesday, February 14, 2012

China has no appetite to 'buy up Europe', not interested in EU government bonds....

China has no appetite to 'buy up Europe', not interested in EU government bonds....

Lou-jiwei of CIC, China prepared to invest in industrial and other real hard assets....

The head of China’s 410 billion dollars sovereign wealth fund CIC brushed aside a call by German Chancellor Angela Merkel to buy European government debt, saying such investments were “difficult” for long-term investors...

In comments ahead of a China-EU summit starting on Tuesday, Lou Jiwei, chairman of China Investment Corp (CIC), said any fresh injection of funds into Europe would be in industrial and other real assets, not government bonds.

His comments struck a sharper tone than a commentary in the Communist Party mouthpiece, the People's Daily, which sought to reassure the European Union that China had no intention to “buy up Europe”.

Speaking at a forum in Beijing, Lou said Merkel had asked CIC and other long-term investors to buy European government debt when she visited Beijing earlier this month.

“For European bonds like the government bonds of Italy and Spain, only central banks with certain responsibilities can invest,” he said.

”But it's more difficult for long-term investors like us to make (such) investments,“ he told the annual meeting of China Economists 50 Forum, a club of government officials and economists.

”Investment opportunities may be in areas like infrastructure and industrial projects, and these projects can help economic recovery,“ he said.

A central bank adviser echoed Lou's harder line on buying European government debt.

”We may be poor, but we aren't stupid,“ Xia Bin told reporters on the sideline of the forum. ”We must follow commercial principles in making such investments. That means we want returns.“

Lou, who predicted Europe will ”inevitably“ fall into recession, said Merkel had asked CIC to buy European government debt, including that of France and Germany.

Reflecting Lou's comments on infrastructure, CIC recently bought a minority stake in London water supplier Thames Water.

During a visit by Merkel to China this month, Premier Wen Jiabao had said Beijing was considering increasing its participation in rescue funds set up by the European Union to help ease the debt crisis, although he didn't make any explicit commitments.

Pointing to the tone that China is more likely to adopt at its summit with senior EU officials on Tuesday, the People's Daily said in a front page commentary that the interests of the world's second-biggest economy lay in selflessly helping Europe.

”China has no appetite or ability to 'buy up Europe' or 'control Europe' as some European commentators have said,“ wrote Feng Zhongping, director of the Institute of European Studies at the China Institute of Contemporary International Relations.

”China has from the beginning strongly supported the EU and the euro, in clear contrast to the 'talking down' of Europe in the international community,“ Feng wrote in the piece, carried in the paper's overseas edition.

With more than 3 trillion dollars in foreign exchange reserves -- dwarfing those of other countries -- China is seen as having the financial firepower to help ease Europe's debt crisis.

Chinese leaders have repeatedly expressed confidence Europe will handle the crisis, while refraining from making firm financial commitments of support. Instead, Beijing has urged Europe first to take further steps on its own, a position reiterated on Monday by Foreign Ministry spokesman Liu Weimin.

”We have always supported the proactive measures the EU has taken to deal with the euro debt crisis. We believe that aside from taking some emergency relief steps, the EU should continue taking fiscal and financial structural and fundamental reforms to give a clearer signal to the international community,“ Liu told reporters.

”Heavily indebted countries should, according to their national condition, adopt appropriate fiscal policies. The international community should continue to pro-actively support the EU's efforts to deal with the crisis.”

EU's begging expedition to China....

Europe returned from its begging expedition to Beijing empty-handed. Well, they called it a summit, but it was an unmitigated begging expedition, one more in a series. Jose Manuel Barroso, President of the EU Commission, and Herman Van Rompuy, President of EU Council, were talking to Premier Wen Jiabao, trying to lure China into plowing part of its hard-earned foreign exchange trillions into the European bailout fund, the EFSF. And they made that dreadfully convoluted and opaque creature smell like a rose, expounding with habitual European finesse and nuance on its guarantees and loss mitigation provisions backed by countries like Italy and Spain that can barely keep their nose above water.

Even a small amount would have been something. Anything really. Just so that they wouldn’t have to fly home empty-handed. And once they got their foot in the door, surely, there’d be ways and means to get the other foot in as well. But rather than kick out the conniving beggars, Wen smiled and declared soothingly, as always, that Europe was an important partner, and that China and the EU would work together to solve the debt crisis.

But where's the money? It appears that buying sovereign bonds of debt-sinner countries that are veering towards insolvency and need of an ever larger flow of cheap money to pay off old investors and teetering banks just isn't a lot of fun.

China has its own problems on the horizon—and some, like a popping real estate bubble, on its doorstep. No one knows where this will end up, but real estate won't experience a soft landing, nor will the construction business. Foreign direct investment is down, well just a smidgen, but the Ministry of Commerce warned that the outlook for FDI was outright "grim." And then it turned out that China reduced its holdings of US Treasuries, down to $1.1 trillion, the lowest since June 2010.

The Chinese people, some of whom had bought apartments that dropped 30% in value since, aren’t particularly eager to help a distant continent, though, judging from the masses of Chinese tourists in Europe, they're doing quite a bit to help out. Just not for free. Perhaps they remember the past when the West lectured China on a laundry list of issues, from capitalism to human rights and democracy, and when French President Nicolas Sarkozy got into a pissing match with China just before the Beijing Olympics. Anti-Chinese sentiment ran high in France at the time. But that was 2008. Now, the Eurozone is steeped in a debt crisis, and even France’s most coddled industry—fine wines—got slapped in the face. By China. Read.... Merde! Chinese Wines Did What to French Wines?

Barroso and Van Rompuy assured the world that they’d talked to Wen about other issues as well, the usual crowd pleasers: better market access for European companies and better protection of intellectual property. Even Syria came up. They’re trying to do what US Presidents and Secretaries of the Treasury have done for years: regular begging expeditions to Beijing, dressed up as diplomatic discussions. But China is less interested in crappy sovereign bonds than in productive assets that offer strategic advantages, certain technologies, and access to markets. It’s a government policy. State-owned enterprises, the sovereign wealth fund CIC, and some private companies are actively pursuing it.

Meanwhile, the ever-worsening Eurozone debt crisis has frayed a lot of nerves, particularly among Greek politicians, whose country is on the verge of bankruptcy, and among German politicians, who no longer trust Greek politicians. But now, a far bigger confrontation at the very core of the Eurozone is shaping up, one that may turn into a debacle with epic consequences.... Fran├žois Hollande v. the German Dictate....

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