A Bull in a China-Euro Shop?

How China Feels About European Investments

It’s nice that China Investment Corp (CIC) is in a good place financially, but it might be best advised to not put all its eggs in one basket. Established a mere four years ago to invest China’s foreign exchange reserves wisely, the multi-billion wealth fund (with estimated assets as of $532 billion as of two years ago) is seeking potential investment opportunities in Europe but is somewhat realistic about the area’s problems. This would make sense since just over 20 percent of its equity investments have been going into Europe.

Nonetheless, since the CIC has already had significant exposure to Europe, one would think it would be a little more cautious as things stand. Apparently not. Even though sentiment remains somewhat less than optimistic, plans may still forge ahead especially in the infrastructure sectors.

Global Economy

The Boao assembly where these issues were discussed is a gathering of government, business and academic leaders to “discuss pressing issues in the region and the rest of the world.” In recent times, China has been purchasing foreign currencies that are put towards its exports as a way of controlling the yuan value. In general they are put into sturdy US Treasury bonds but given the global economic fiasco, the CIC has been making efforts to “be more aggressive to improve returns.”

CIC and Asia Exporters

According to Asia’s largest thermal coal exporter Bumi Resources, talks were being held with CIC about the possible “swap of $600 million debt into equity” but this would obviously require the total support of CIC, according to Kenneth P. Farrell, the company’s director and CEO of Bumi Resources Minerals.

Nonetheless, the main priority of Bumi is to “repay a first tranche of $600 million in debt this October — two years earlier than scheduled — out of a total $1.9 billion it owes to China's sovereign wealth fund.

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