CIC Doesn’t ‘Dare’ Invest in Financial Companies, Chairman Says

China Investment Corp. Chairman Lou Jiwei said he wouldn’t “dare” invest the sovereign wealth fund’s money in foreign financial firms after losing $6 billion on stakes in Morgan Stanley and Blackstone Group LP.

“I don’t dare to invest in financial institutions now,” Lou said today at a conference in Hong Kong. “The policies of the developed nations on these institutions are not clear. Until they are clear, I don’t dare to invest in them. What if they go bust? I will lose everything.”

Western banks have turned to state-owned investment funds in Asia and the Middle East for money as they seek to shore up capital eroded by almost $1 trillion in writedowns and losses triggered by the collapse of the U.S. subprime mortgage market.

CIC, with $200 billion, last year invested $5 billion for 9.9 percent of New York-based Morgan Stanley and $3 billion in Blackstone, the world’s largest private-equity firm. Morgan Stanley has lost 77 percent of its market value since then while Blackstone, also based in New York, has shed 85 percent.

The fund spent 2.2 billion euros ($2.8 billion) for 3.1 percent of Barclays Plc in July 2007, and bought another 136 million pound ($202 million) stake in June. The combined holding, which was diluted to 2.97 percent after Barclays’ latest round of fundraising in November, is now worth $582 million.

The U.S. Treasury has committed $700 million to rescue financial firms after a global credit seizure forced the sale of Bear Stearns Cos., a government rescue of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc. this year. The British government is spending 50 billion pounds buying stakes in Royal Bank of Scotland Group Plc, Lloyds TSB Group Plc and HBOS Plc.

Undervalued Companies

China, which primarily invests its $1.8 trillion currency reserves in low-yielding U.S. government debt, set up CIC last year to put about $200 billion into assets with higher rates of return, such as stocks and corporate bonds.

“Now is also an opportunity for us. Some companies are undervalued and we can invest in them,” Lou said, adding that the fund plans to buy in non-financial industries overseas.

The Chinese government announced a 4 trillion yuan ($586 billion) stimulus plan in November to spur expansion in the world’s fourth-largest economy.

That may not be enough to prevent Asia from slipping into a recession, according to Stephen Roach, chairman of Morgan Stanley Asia Ltd.

“American consumption, to be quite blunt about it, is tossed, and when the consumption bubble goes that’s a big problem for this region,” Roach said at the conference. “There is no country in this region that is not either slowing or in recession right now because the world’s biggest end market for its exports is in serious trouble.”

China cannot save the global economy from financial crisis because the world’s most populous nation has its own problems, Lou said.

“Because of the reduced consumption and credit in the developed nations, China needs to boost its domestic demand to sustain growth, which is difficult and requires a lot of reforms to do,” he said.