CIC: DonÆt count on China to save the world

China has enough of its own troubles to worry about, says the head of the China Investment Corporation, speaking at the Clinton Global Initiative meeting in Hong Kong.
It was standing room only when Lou Jiwei, chairman and CEO of China Investment Corporation, spoke on a panel titled æCoping with the Financial CrisisÆ on the second day of the Clinton Global Initiative meeting in Hong Kong yesterday. A whoÆs who of A-list financiers showed to hear Lou speak on the topic, most of whom wanted to know how China might save the world.

The A-list included a group of senior honchos from Blackstone led by the groupÆs Asia chairman Antony Leung who monopolised the front row.

On stage, Lou was accompanied by a heavyweight panel that included: Stephen Roach, chairman of Morgan Stanley Asia; Laura Tyson, former chairperson of the US Council of Economic Advisors under the Clinton administration and now a professor of the Haas School of Business in the University of California, Berkeley; Zhang Shengman, president and COO of Citi in Hong Kong; Marc Lasry, chairman and CEO of Avenue Capital (current employer of Chelsea Clinton); as well as Thomas Easton, the Asia business editor of the Economist.

In his speech, Lou told the audience not to expect China to save the world.

ôChina is facing many internal problems,ö he says, ôIn particular, our nation is tackling the gaps in insufficient national demand so that we can save our overall level of productivity. If we could hold this up, this is already a major contribution that China can make to the rest of world.ö

ôChina, as every other major nation, is facing a slump in consumption. And as every leader should know, itÆs easy to encourage investments, but never easy to encourage consumption. To tackle this, it takes substantial reforms. And this is not a feat we can achieve in one to two years," he adds.

Ultimately, China, like any other Asian country is still dependent on American and European spending. He says it is good enough to have China doing well, noting it is improbable for Western leaders to believe China as an export-dependent country can jump-start the world economy.

Lou acknowledged Western institutions have come knocking on CICÆs door and he reckons attractive valuations have indeed emerged in the market. However, he notes the way how CIC thinks has changed since the days of its Morgan Stanley investments.

He says the group has entirely backed away from investing in Western financial institutions because of uncertainties created by foreign government intervention in financial markets. He says foreign governmentsÆ initial good intentions have further distorted and possibly further distressed the failing markets.

As an example, he observes the strange phenomenon where financial institutions of poor quality have now acquired sound credit ratings as good as the governmentsÆ through nationalisations or bailouts. This places institutions that are well-run and do not require government assistance in a disadvantaged competitive position, he says.

ôEither way, I lose,ö he reasons, adding these uncertainties in policy-setting will need to be resolved before the CIC will consider committing to such investments.

Furthermore, he speaks out against the æinsider-centricÆ attitude behind the government rescues. He says such actions were not intended to first protect investors. He also lashes out at Western governments for having in part encouraged the unnecessary excesses over the past decade.

ôUp to this moment, everyone had believed this is a systemic crisis," he says. "True, the crisis is systemic û the mistakes committed were at a systemic level; at the level of (Western) government policymakers. I feel these governments have undeniable responsibilities for having pursued the wrong policies.ö

In the current environment, Lou says the CIC has scaled down its allocation target for private-equity transactions, particularly for those that might be deemed to be high-profile among the public.
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