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“We may be poor but not stupid”, China is not interested in EU government bonds

Lou Jiwei: China prepared to invest in industrial and other real assets

The head of China’s 410 billion dollars sovereign wealth fund CIC brushed aside a call by German Chancellor Angela Merkel to buy European government debt, saying such investments were “difficult” for long-term investors.

In comments ahead of a China-EU summit starting on Tuesday, Lou Jiwei, chairman of China Investment Corp (CIC), said any fresh injection of funds into Europe would be in industrial and other real assets, not government bonds.

His comments struck a sharper tone than a commentary in the Communist Party mouthpiece, the People's Daily, which sought to reassure the European Union that China had no intention to “buy up Europe”.

Speaking at a forum in Beijing, Lou said Merkel had asked CIC and other long-term investors to buy European government debt when she visited Beijing earlier this month.

“For European bonds like the government bonds of Italy and Spain, only central banks with certain responsibilities can invest,” he said.

”But it's more difficult for long-term investors like us to make (such) investments,“ he told the annual meeting of China Economists 50 Forum, a club of government officials and economists.

”Investment opportunities may be in areas like infrastructure and industrial projects, and these projects can help economic recovery,“ he said.

A central bank adviser echoed Lou's harder line on buying European government debt.

”We may be poor, but we aren't stupid,“ Xia Bin told reporters on the sideline of the forum. ”We must follow commercial principles in making such investments. That means we want returns.“

Lou, who predicted Europe will ”inevitably“ fall into recession, said Merkel had asked CIC to buy European government debt, including that of France and Germany.

Reflecting Lou's comments on infrastructure, CIC recently bought a minority stake in London water supplier Thames Water.

During a visit by Merkel to China this month, Premier Wen Jiabao had said Beijing was considering increasing its participation in rescue funds set up by the European Union to help ease the debt crisis, although he didn't make any explicit commitments.

Pointing to the tone that China is more likely to adopt at its summit with senior EU officials on Tuesday, the People's Daily said in a front page commentary that the interests of the world's second-biggest economy lay in selflessly helping Europe.

”China has no appetite or ability to 'buy up Europe' or 'control Europe' as some European commentators have said,“ wrote Feng Zhongping, director of the Institute of European Studies at the China Institute of Contemporary International Relations.

”China has from the beginning strongly supported the EU and the euro, in clear contrast to the 'talking down' of Europe in the international community,“ Feng wrote in the piece, carried in the paper's overseas edition.

With more than 3 trillion dollars in foreign exchange reserves -- dwarfing those of other countries -- China is seen as having the financial firepower to help ease Europe's debt crisis.

Chinese leaders have repeatedly expressed confidence Europe will handle the crisis, while refraining from making firm financial commitments of support. Instead, Beijing has urged Europe first to take further steps on its own, a position reiterated on Monday by Foreign Ministry spokesman Liu Weimin.

”We have always supported the proactive measures the EU has taken to deal with the euro debt crisis. We believe that aside from taking some emergency relief steps, the EU should continue taking fiscal and financial structural and fundamental reforms to give a clearer signal to the international community,“ Liu told reporters.

”Heavily indebted countries should, according to their national condition, adopt appropriate fiscal policies. The international community should continue to pro-actively support the EU's efforts to deal with the crisis.”