Signals from China: Euro Good, Dollar (Potentially) Bad

Recent statements by the heads of the China Investment Corporation and the Chinese Social Security system express faith in the Euro – and concern over the value of the U.S. dollar.

(June 26, 2011) – Comments emerging from the leaders of China’s varied asset-owning organization are painting a picture that is pro-Euro and decidedly less pro-U.S. dollar.

According to Reuters, the China Investment Corporation (CIC) – a $300 billion fund that is increasingly prominent on the world stage – is viewing the short-term European debt worries as but a bump in an otherwise smooth road. “There is nothing to be worried about,” Laurence Lau, chairman of the Hong Kong office of CIC, recently told reporters, according to Reuters. “The euro will not fall apart.” Buttressing the CIC view is Chinese Premier Wen Jiabao, who is “still confident” that Europe can emerge from the crisis that currently surrounds it and Greece.

Another Chinese asset owner, however, has a less-positive view of the United States. According to statements made at a recent conference by Dai Xianglong, chairman of China’s National Council for Social Security Fund and former governor of the country’s central bank, the United States must reduce its fiscal deficit relative to its GDP, Dow Jones is reporting. According to the news agency, Xianglong believes that a failure to do so will result in the US dollar losing value – and also losing its reserve currency status.

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Chinese officials likely hope the U.S. follows Xianglong advice: the CIC, for one, has increasingly been investing in North American assets, and any currency depreciation would harm them significantly as they repatriate capital.

To contact the aiCIO editor of this story: Kip McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

The New Jersey Assembly has overwhelmingly passed a bill that Governor Chris Christie has trumpeted as necessary to shore of state finances – but which teachers have lambasted as unnecessarily harsh.

(June 24, 2011) – Following on the heels of the State Senate, the New Jersey State Assembly passed a public pension overhaul bill Thursday that has been championed by Governor Chris Christie and will see teachers pay more into their defined benefit pension plan, among other changes.

The vote was not close. Governor Christie is expected to sign the bill into law on Monday.

The bill is the result of a bipartisan agreement between Governor Christie, a Republican, and State Senate President Steve Sweeny, a Democrat. Under the bill, workers will be required to pay more of their salaries into the pension system. They would also give up annual cost-of-living increases, while also paying a percentage of their health care premiums in a tiered system based on their salary. The bill also mandates that the state make its payments to the pension fund—a requirement that would end New Jersey’s decade-long practice of skipping payments into the fund in order to shore up deficits elsewhere in the budget.

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Unions, as expected, have reacted with anger to the deal. Earlier this week, one union – the Local 1033 of the Communications Workers of America (CWA) – filed a lawsuit claiming that Governor Christie and his predecessors’ failure to make payments to the state’s pension funds violated a constitutional prohibition against the “impairment of contracts.” The suit, brought in US District Court in New Jersey, states that since 1998 the state has made only three partial payments to the pension, skipping the remaining ones.

New Jersey faces a $53.9 billion pension deficit, in addition to $66.8 billion in health-care liabilities – for which nothing has been set aside. According to many commentators, the deficits result from decades of mismanagement, with politicians of both parties making promises to unions without making an effort to pay for them. Furthermore, the stock market crash in 2008 wreaked havoc on New Jersey’s portfolio.

To contact the aiCIO editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>