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POLITICAL ECONOMY
West is failing to capitalise on rising China: HSBC
by Staff Writers
Singapore (AFP) Jan 15, 2013


China fund may cut US debt holdings: report
Shanghai (AFP) Jan 15, 2013 - China's sovereign wealth fund, which has more than $480 billion in assets, could cut holdings of US Treasury Bonds as they are becoming a less attractive investment, state media said Tuesday.

The Shanghai Securities News quoted Lou Jiwei, chairman of sovereign wealth fund manager China Investment Corp (CIC), as telling a conference in Hong Kong on Monday that the US economic recovery had made other investments appealing.

China has the world's largest foreign exchange reserves and according to US government figures is the largest foreign holder of US Treasuries with $1.16 trillion at the end of October last year, the latest available statistic.

"In line with the future US economic recovery, the appeal of US debt is weakening," Lou said. "From a long-term perspective, it is not a good investment target."

However, he added that completely stopping buying of US Treasuries could hurt the fund's ability to manage risk.

"For this reason, CIC's method is to buy relatively less US debt with hopes of allocating more to stocks and other assets," Lou said, without specifying whether he was specifically referring to US-dollar assets.

Last year, the fund was overweight in investments in the United States and developing countries but underweight in Europe given the continent's sovereign debt crisis, the report said.

CIC saw the manufacturing and property sectors as attractive for future investments, it said.

CIC could not be reached for comment on the report on Tuesday.

It was established in 2007 to invest some of China's massive foreign exchange reserves, which stood at $3.31 trillion at the end of last year.

China's sovereign wealth fund suffered a 4.3 percent loss on its overseas investments in 2011 due to the weak global economy. It was the first loss since 2008, when CIC was hit by the global financial crisis.

China on Monday announced it had set up a new office under the foreign exchange regulator to funnel some of the reserves to domestic companies, in the form of commercial loans to support their overseas expansion.

Western nations have failed to capitalise on China's economic rise as they struggle with their own problems, leaving others to benefit from the Asian giant's insatiable demand, HSBC said Tuesday.

"The world economy is increasingly led by China. Those nations raising their China exposure have outperformed. Western nations, faced with internal discord, have failed to grab the opportunity," the bank said.

"We are rapidly moving away from an 'old world' dominated by Europe, the US and Japan to a 'new world' led by China," it said in a report entitled "The Great Rotation".

Among the beneficiaries of the global shift are countries located close to China and far-flung exporters that supply the Asian giant's demand for commodities, the report noted.

South Korea's exports to China currently account for 12 percent of its gross domestic product (GDP), up from 3.5 percent in 2000, HSBC said.

Malaysia and Singapore are also key industrial exporters to China while commodities producers like Australia, Chile, Kazakhstan and Saudi Arabia "have also shared in the spoils," the bank added.

"And in demonstrating China's ever-increasing connections with Africa, Angola is now China's 14th most important source of imports ahead of India, France, Canada, Italy and Britain," it said.

Western countries, in contrast, have failed to exploit Chinese demand, it said.

US exports to China account for a mere 0.7 percent of US GDP, with Canada, France and Italy "more or less" at the same level, HSBC said.

Britain's exports to China are even less significant at 0.4 percent of British GDP, it said.

While Germany has expanded its trade ties with China, this was overshadowed by a bigger increase in its dependence on the rest of Europe, HSBC noted.

This is "one reason why, despite its competitive advantages, Germany found itself succumbing in the second half of 2012 to a crisis which had already engulfed other parts of the eurozone," the bank said.

HSBC forecasts China's economy to grow 8.6 percent this year, up from an estimated 7.8 percent expansion in 2012.

The US and Japanese economies are expected to grow 1.7 percent and 0.2 percent respectively next year while the eurozone is likely to contract 0.2 percent, the bank said.

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