Sixty years ago, communism saved China. Thirty years later, capitalism saved China. Could China now save capitalism?
It’s a nice idea. The Financial Times’ report that China Investment Corp, the sovereign wealth fund, planned to buy Italian assets (including government bonds) has sent a few ripples of relief across markets. But the plans should not be read as Beijing’s vote of confidence in il bel paese, or in its ability to service its debts. The motives may well be much simpler: fund managers trying to expand their turf.
In July CIC released its 2010 financial report. Headline returns on its global portfolio were 11.7 per cent -- identical to the figure reported in 2009. That brought its total assets under management to $135-billion, up from its initial $21-billion seeding in 2008.
But in order to qualify for another big injection from China’s foreign exchange reserves -- the Ministry of Finance released an additional $58-billion in 2009 -- the fund needs to demonstrate that it is ready, willing and able. Hence the extremely aggressive drawdown of cash holdings, from 32 per cent of assets in 2009 to 4 per cent last year.
CIC bought anything and everything: large-cap U.S. stocks, emerging-market equities, commodities, futures, real estate, infrastructure. A European bond fund was one of at least eight new, internally-managed portfolios set up during the year.
Holdings could be considered “strategic” -- to be held for the long-term -- or “tactical” -- to be reviewed every three to six months. Italian finance minister Giulio Tremonti may never know which. More important is the message CIC’s purchases send internally -- that the fund is fully invested, and itching for more. European investors may be seeking reassurances. But chairman Lou Jiwei is simply building a business. Geopolitics, for better or worse, does not come into it.