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

(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.

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.