In 2007, China's sovereign wealth fund (SWF), China Investment Corporation (CIC), suffered huge losses in its investments in US financial institutions, enduring a deluge of criticism in the domestic press, and then was contained by protectionism in US and Europe in 2008. This year, CIC feels its great fortune in avoiding significant losses in those areas, and is now preparing to take action.
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At the Boao Forum for Asia, Lou Jiwei, chairman and CEO of CIC, disclosed that, "Europe is more welcoming of investment now and is loosening conditions, and we are considering investment because we are finding a lot of opportunities."
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Lou expressed "special thanks" to trade protectionism last year aimed at China’s finance. For example, EU made it clear that investment could not exceed 10%, with no grant of the right to vote, which, Lou said, he could not accept. "Therefore, I am grateful to their protectionism. Thanks to this, I didn’t invest a penny in Europe last year."
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However, Lou stressed that: "We were on the alert before the crisis, and reduced overall foreign investment. But the situation has changed this year." For the new opportunities, CIC will consider active yet cautious and moderate scale investments.
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In recent years, as SWF have increased in scale, their potential influence in international financial markets has worried Western countries, which are busy promulgating rules for SWF through the International Monetary Fund (IMF). Lou acknowledged that "the problems of sovereign wealth funds and financial protectionism having been haunting us."
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At that time, three SWF issues were under discussion: best practices; the right to vote in the institutions in which they own shares; and transparency. The four rounds of IMF-organized negotiations ran right across the large-scale outbreak of the financial crisis last September. Lou Jiwei said participants have reached consensus in the latter two issues, i.e. SWF will explain voting rules to the outside world and will gradually increase transparency. At the same time, SWF have put forward that countries receiving investment can not engage in financial protectionism, and should give a clear definition to terms such as "national security." Lou believes that consensus is linked with the international financial crisis, in which SWF can be seen as an important stabilizing force.
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The financial turmoil has promoted a change of attitude in the international community towards SWF. "The establishment of China’s SWF is a natural reaction to the existing irrational international monetary mechanism," Lou points out. "The financial crisis has changed attitudes of countries receiving investment."
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