China's SWF Exudes Caution in Investing in Traditional Auto Industry

(September 21, 2010) — While not naming specific companies, the general manager of the $300 billion China Investment Corp (CIC) said the fund will be cautious about investing in the traditional auto industry, Reuters is reporting.

Speaking at an automotive forum in Chengdu, China, the CIC’s general manager Gao Xiqing said that during the financial crisis, the sovereign wealth fund was approached by a variety of carmakers about potential investments.

“An investment fund like us has to invest in relatively conservative and stable industries, said Gao, according to Reuters. “We have to invest in companies that will survive 50 years from now.” While not excluding investments in local Chinese companies listed overseas, Gao added that the focus of the CIC — set up in September 2007 — is primarily on foreign assets. “The responsibility that the country gave us is not to invest (mainly) in mainland Chinese companies, but we can invest in Chinese companies listed overseas, such as those with H shares,” he said, referring to mainland Chinese companies listed in Hong Kong.

In recent news, the Wall Street Journal reported that emerging markets are a burgeoning focus for the CIC as returns in mature fixed-income markets such as the US and Europe are likely to remain low for roughly the next 10 years.

“…we are going to see a long period of very low growth, low rates, and low return in mature world (economies) like the US and Europe,” Ludwig He, CIC’s managing director and head of public markets investment, said at the Latin America China Investors Forum, according to the WSJ. He stressed the importance for emerging countries to have a stable bond market to lure foreign investors by offering protection against rising prices, putting a spotlight on Brazil, where the inflation-linked bond market has helped to ameliorate investor fears about market volatility. He added that global investor interest in Latin American currencies may slowly rise in the long term.

As part of its diversified global asset allocation, Ludwig noted that the CIC has a “very small amount” of investment in Brazil’s inflation-linked bond market and also invests in Japanese government bonds, the WSJ reported.