CIC Pulling Back from Europe, Says Chief

(June 8, 2012)—China Investment Corporation (CIC) has moved to minimize its investments in European fixed income and equity as fears mount about a potential Eurozone collapse, the chairman and CEO of the mammoth $410 billion sovereign wealth fund said in an interview with the Wall Street Journal.

“There is a risk that the Eurozone may fall apart and that risk is rising,” said Lou Jiwei, in his first interview with the Western press in five years.

Lou also criticized the proposed idea to form Eurobonds as a vehicle for collectivizing the Eurozone’s debt and alleviating some of the bond market’s pressure on its more indebted countries. “Europe hasn’t formed necessary fiscal discipline and hasn’t got the right policies in place,” for such bonds to be an attractive investment for the CIC, he said. “The risk is too big, and the return too low.”

Speculation—or hope—that China would serve as a white knight and buy up distressed European sovereign debt will likely be quieted by Lou’s comments. Striking an equivocal note, the CIC chief said that while a European debt crisis would only have a marginal impact on Asia, fears about it had already slashed China’s exports. “Nobody can keep his powder dry if everyone else’s is wet,” Lou told the WSJ.

On June 5, Lou announced with Kirill Dmitriev, the CEO of the Russian Direct Investment Fund (RDIF), that the CIC and the RDIF would form a joint investment fund that could be worth as much as $4 billion. According to the announcement, the fund would primarily invest in Russia.