With Europe in a Financial Slump, China Investment Corp Voices Support

Without being a main source of aid for Europe, China's sovereign wealth fund may give "indirect" support to the region through investments. 

(November 26, 2011) — As Europe battles a sovereign debt crisis, China’s sovereign wealth fund may offer “indirect” aid to the beleaguered region. 

Jesse Wang, executive vice president of China Investment Corp., told the Economic Times earlier this month that the Chinese fund would likely not be the primary channel of aid if China helps ameliorate the sovereign debt crisis. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.” 

World Bank President Robert Zoellick recently announced that China is among the countries that may be willing to support Europe through the International Monetary Fund (IMF) if policymakers agree on a plan. 

The potential commitment voiced by the Chinese sovereign wealth fund comes as industry leaders are foreseeing a European recession. In September, Mohamed El-Erian of Pacific Investment Management Co. (PIMCO), which runs the world’s biggest bond fund, said that he is forecasting a European recession in 2012.

El-Erian, chief executive officer of PIMCO — with $1.34 trillion in assets under management — asserted that there will be little-to-no economic growth in industrial nations over the next year as Europe’s economy contracts by up to 2%. Meanwhile, he said that the US will stagnate yet volatility will continue as a result of policymakers in Europe and the US having failed to take corrective action. “For the next 12 months, the global economy will slow materially with advanced economies struggling to grow much above zero. Emerging economies will maintain faster growth, albeit not as high as the last 12 months,” Bloomberg cited El-Erian as saying during a September 24 interview in Washington. 

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742