China Fund Won’t Bail Out Western Financial Firms

SHANGHAI (Reuters) – China Investment Corp (CIC), the country’s $200 billion sovereign wealth fund, is unwilling to bail out troubled Western financial firms because of unfair restrictions on its investment, a deputy general manager of the fund said on Saturday.

“On the one hand, the U.S. needs us; on the other hand, they’re suspicious toward us. They want us to invest at their will. That’s not sincere cooperation,” Wang Jianxi told a financial conference in Shanghai.”

“That’s why sovereign funds now have little willingness to take an active role in easing the financial crisis.”

Wang said the U.S. government had imposed tight restrictions on CIC’s investment because it feared the fund was controlled by China’s ruling Communist Party, and thus could threaten U.S. national security.

“Some ask us why we don’t buy oil and mining resources in the U.S. That’s exactly the kind of investment banned by the U.S. government,” Wang said.

His comments were one of the strongest official warnings yet that China does not intend to help rescue the West’s financial industry. CIC chairman Lou Jiwei said earlier in the week that the fund was “not brave enough” to invest in foreign financial firms, and lacked confidence in U.S. financial regulation.

Wang said uncertainty over legal protections for investors in the West could make investing there unattractive.

For example, although CIC ordered a full withdrawal of its cash from Reserve Primary Fund REPXX.O before the U.S. money market fund halted redemptions, CIC may still risk the possible loss of its principal, Wang said.

“They may change the rules. We do not rule out the possibility of a lawsuit.”

Reserve Primary Fund suspended redemptions in September after it suffered heavy losses on debt in bankrupt Lehman Brothers Holdings, although it has since made two distributions.

CIC, set up a year ago to manage part of China’s foreign exchange reserves, has faced criticism from the Chinese public for incurring large unrealised losses on its stakes in U.S. private equity firm Blackstone Group and Wall Street bank Morgan Stanley.

Wang complained about the “Santiago Principles”, a voluntary code of conduct for sovereign wealth funds that the funds agreed with the International Monetary Fund in October.

The code, which requires transparency and the disclosure of mark-to-market accounting information for long-term investments, has put sovereign funds under immense public pressure, he said.

By Samuel Shen
(Editing by Andrew Torchia, Ron Askew)