China Poised to Move Investment Targets to Europe

By Yuan Zhaohui
Published: 2008-10-09

From page 6 issue 387~388 Sept 29 2008
Translated by Liu Peng
Original article:

The American financial crisis would likely accelerate the pace for China's State Administration of Foreign Exchange (SAFE) to diversify its oversea investments and switch its focus to the European market.

The EO learned that during the past two weeks, many high-level managers from European private equity firms have come to Beijing on invitation by Chinese officials. Sources told the EO that after the US financial crisis began, some of these European managers were invited to impart investment from Europe, while others came to actively seek Chinese investment.

Sources told the EO that both SAFE and the China Investment Company (CIC)--which manages China's USD200 billion sovereign-wealth fund--would have more possibilities to migrate their investment to Europe, and that authorities were already discussing this.

Pu Yonghao, head of UBS Wealth Management Research (Asia-Pacific Regional), told the EO that "China’s huge dollar-denominated foreign exchange reserve should be diversified.”

SAFE’s Low-key Investments
China’s SAFE has made many secretive oversea investments since last year, and has already acquired shares of nearly 50 UK-listed firms.

Since earlier this year, its frequent appearances in multinationals’ shareholder lists has drawn the attention of global financial institutions.

For example, on April 15, British Petroleum Company (BP) confirmed to the media that a Hong Kong-registered company managed by China’s SAFE purchased nearly 1% of its shares, valued at some USD2 billion according to BP’s market value at that day.

Before that, SAFE had purchased a 1.6% stake in TOTAL, the Paris-based petroleum giant, for a reported USD2.8 billion.

Later, it went on to invest some 134 million pounds (USD234 million) to buy a 1% stake in the UK’s second largest insurer, Prudential Company, through a nominee account in the secondary market.

The EO learned that SAFE has acquired around USD6.7 billion worth of shares in companies listed in the UK through its Hong Kong-registered SAFE Investment Company.

The above activities reflected SAFE’s low-key investment style, which sought returns but not major shareholder position nor to affect the stability of financial markets.

Lu Ting, economic manager of Merrill Lynch (Asia Pacific) Company, pointed out that was a good sign and that in the long term, China would likely diversify its huge dollar reserves to the non-dollar-denominated assets.

Earlier this year when on a state visit, Britain’s Prime Minister Gordon Brown welcomed China’s sovereignty wealth fund (SWF) to invest in Britain.  
Dag Detter, senior advisor of Terra Firma, a European private equity firm, thought Brown’s remark was an active signal that Britain welcomed Chinese investment.

China’s total foreign exchange reserves have reached over 1.8 trillion US dollars in June according to the latest data released by China’s central bank.

Media has reported that from 2005, SAFE was allowed to make oversea investments with 5% of the state foreign exchange reserves, or around USD75 billion if calculated against the USD1.5 trillion in total reserves it was estimated to possess at the end of 2007.