China's sovereign wealth fund won't save Western banks

By Malcolm Moore
The Telegraph, London
Thursday, December 4, 2008

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3547147/...

SHANGHAI -- The chairman of China's largest sovereign wealth fund has said he "does not have the courage" to plough money into Wall Street and the City.

Lou Jiwei, the chairman and chief executive of the China Investment Corporation, a $200 billion (L135 billion) fund, said China had no intention of "saving" the West from the financial crisis.

"Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have," Mr Lou said at the Clinton Global Initiative conference in Hong Kong.

China's disastrous investments in Blackstone, the private equity fund, Morgan Stanley, the investment bank, and Barclays Bank appear to have dulled the appetite for further gambles.

Mr Lou sank $3 billion into Blackstone at $29.605 a share in June 2007. The share price of the fund closed yesterday at $6.04, resulting in a near 80 percent loss of $2.4 billion.

He added that the panicky pace of rule changes by Western regulators also gave him cause for concern. "The policies of the developed nations on these financial institutions are not clear. Until they are clear, I don't dare to invest in them. What if they go bust? I will lose everything," he said.

He also underlined China's determination to look elsewhere for its investments. "We don't want to look at only the advanced or developing countries, we also want to look at emerging markets."

Mr Lou also repeated the Communist Party line that China will concentrate on getting its own house in order. "China can save only herself because the scale of China is still rather small," he said, adding that China's economy is not yet strong enough to have a significant effect on the global economy. "If China can do a good job domestically, that is the best thing it can do for the world," he said.

China has also put together a L373 billion bailout package for its domestic economy and will ramp up spending on enormous public infrastructure projects in order to boost consumption in the countryside.

Yesterday, the government announced that it would offer subsidies on electrical goods to farmers in 14 provinces, in order to help retailers shift white goods.

China's National Bureau of Statistics said more than half of rural homes do not have washing machines because their cost is prohibitive. Three quarters have no fridge.

However, even after the 13 percent rebate, the cheapest fridge is 948 yuan (L95), almost a quarter of the average annual income of a rural household.

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