January 30, 2012 00:00 By Suwatchai Songwanich
As the holder of the world's largest foreign-exchange reserves - more than $3 trillion - China is in an enviable position to ride out the current economic downturn.
It is also poised to play a major role in the recovery of the global economy, thanks to a wave of new investments, especially in the West.
Whereas China’s focus for the last decade was on securing natural resources, its focus has now shifted to infrastructure. This was signaled late last year by the chairman of the China Investment Corporation (CIC) Lou Jiwei when he announced that China was keen to form partnerships to develop Western infrastructure, beginning with Britain.
The British government was quick to respond to the offer and earlier this month British Chancellor George Osborne visited China to explore investment opportunities.
Upon his return to Britain Mr Osborne said that many big projects were under consideration, including a new rail link from London to Birmingham, energy infrastructure, broadband and road schemes.
So it seems the planned Chinese investment in Britain is well on track, and it will undoubtedly boost the British economy, which has been suffering weak economic growth for the past two or three years.
This kind of investment also offers an attractive alternative for the CIC, as they provide reasonable returns with controllable risks.
In November, when he first broached the idea of investing in European infrastructure, Mr Lou noted the importance of infrastructure investments in stimulating economic growth. By way of example, he pointed to China’s experience after the 2008 global economic crisis.
At that time China invested $580 billion in infrastructure spending in China, and China’s annual economic growth rate rose from 6.8 per cent to more than 10 per cent.
Mr Lou said whereas in the past China was involved in overseas infrastructure projects as a contractor, now Chinese investors want to take a more active role by also operating and developing projects themselves.
Since the CIC fund was established in 2007, China has invested massive sums in resources in Africa, Australia and Brazil, stimulating economic booms in all these countries. In Africa the fund also invested in infrastructure development and this boosted economic development even further.
It’s interesting to compare the CIC’s investment example with other sovereign wealth funds such as Singapore’s Temasek, which has also diversified its investment strategy to include asset classes such as large-scale urban development projects. However at this stage Temasek continues to be mainly focused on equities and investments in Asia, rather than Europe.
The CIC’s interest in Europe doesn’t mean it is no longer interested in Asia. Indeed, it may actually open up new channels to this region.
For instance, last August the CIC invested in the gas exploration unit of the French-owned GDF Suez and the companies have pledged to look for more joint investment opportunities in Asia-Pacific.
Given the track record of Chinese investment in stimulating economic growth, I am confident that the new investment strategy of the CIC will good for both Asia and Europe.
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