China seeks viable, solid investment options in Europe

Updated: 2012-01-16 08:07

By Zheng Yangpeng and Zhang Chunyan (China Daily)

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BEIJING / LONDON - China will most likely aim for viable and solid investments in Europe as a way to help the debt-ridden continent, analysts in Europe and China said.

But they said these would occur not because of China's large foreign exchange reserves, nor due to some moral obligation. Rather, they will be purely business decisions.

"The most likely scenario is that China, just like any investor - a private, corporate or national one - will aim for viable, solid investments," Peter Ho, chair professor of Chinese Economy and Development and co-director of the Modern East Asia Research Center in the Netherlands, told China Daily.

Chen Xin, director of the Economics Office of the Institute of European Studies of the Chinese Academy of Social Sciences (CASS), agreed, saying these investments should be based on business principles.

These comments came as Standard & Poor's decided on Friday to downgrade the credit rating of France and other eight eurozone nations, adding to market jitters over the situation in Europe.

The leading ratings agency said Europe's austerity measures and budget discipline alone were insufficient to fight the debt crisis and may become self-defeating.

But Chen said Standard & Poor's decision was largely a hedge act which did not necessarily reflect reality, pointing out that last week Italy and Spain's bonds were sold with a lower yield rate, a sign of increasing investor confidence.

"Rather than the actual fiscal state, the eurozone crisis is the result of the market's lack of confidence in the bloc's governing structure," Chen said, with the exception of Greece, which faces a suffocating debt.

In this context, China's investments, whether in the form of mergers and acquisitions or bond purchases, will boost market confidence, Chen said.

A small portion of China's $3.18 trillion foreign exchange reserves are invested in European sovereign debt.

Realizing its risks, many Chinese officials and academics have been calling for the nation to buy into real overseas assets, including infrastructure.

In November, Lou Jiwei, the head of China Investment Corporation (CIC), China's sovereign wealth fund, said in a Financial Times article that CIC is keen to get involved in boosting infrastructure investment in the West, starting with the United Kingdom.

"We at CIC believe that such an investment, guided by commercial principles, offers the chance of a 'win-win' solution for all," Lou said.

The interest in solid assets was evident in China Three Gorges Corp (TGC) purchase of a stake in Portuguese utility Energias de Portugal (EDP) in December. The State-owned company bought a 21 percent stake in EDP for 2.69 billion euros ($3.51 billion).

The Wall Street Journal said the transactions opens doors to EDP's renewable energy assets in Brazil, a key emerging economy.

The Portuguese company is a major power producer there, operating a sizable number of hydroelectric plants and supplying more than 2 million customers with energy.

China Daily

(China Daily 01/16/2012 page11)