Euro Woes Don't Faze Chinese Pension Fund

Leo Kolivakis's picture

Via Pension Pulse.

reports, Euro will
survive debt crisis - China pension fund

euro will be able to weather the sovereign debt crisis, the Chinese
national pension fund chief said on Thursday, helping spark a sharp
rebound in the European currency from the day's lows.


Dai Xianglong, chairman of the $114
billion National Social Security Fund, also said the large fiscal
deficit in the United States remained a serious concern and that it
could dent the value of the China's foreign exchange reserves.


"I think it is quite normal for the
euro to be experiencing swings because of the European debt crisis," Dai
told a financial forum in Tianjin, a port city just east of Beijing.


"I do
believe the euro will gradually stabilise and survive the crisis."

He struck a cautious note on the dollar.


"The U.S. fiscal deficit is still big,
so there is a risk that the value of China's forex assets will
contract," Dai said.


The euro
climbed about 0.4 percent versus the dollar from its lows earlier in
the day after he spoke.


Dai said in March that the Chinese pension
fund was looking to pour more money into foreign stocks and bonds as
well as overseas private equity funds and unlisted firms.


The Chinese pension fund had about 6.7
percent of its assets invested abroad, according to numbers released
earlier this year. Chinese regulations permit it to allocate up to 20
percent of its assets in overseas markets.


The pension fund expects its assets under management to reach 2
trillion yuan ($293 billion) by 2015 from 776.5 billion yuan at the end
of last year.

As far as the euro is concerned, China's
exports are booming
, so the last thing it wants is a stronger USD
(which it's pegged to). And China is getting into the reflation trade
too. More stocks, corporate bonds, private equity and hedge funds. All
that liquidity will drive risk assets even higher. Get ready for the
next bubble. It's not a matter of if but when. My feeling is that it's
right around the corner.

I leave you with a couple of videos worth seeing. Frank
Gong, a China strategist for JP Morgan discusses the outlook
for trade
, and Andy Xie, independent analyst, discusses the
property market in China
. Both interviews are must watch interviews.

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john_connor's picture

This is all anecdotal of course.  Show me the actual money flow.  Otherwise this is just another black box number coming out of China whether one is making a bull or bear argument.  China will likely just continue to invest in hard assets or hard asset proxies. 

You may be right Leo on the general trend of overall China investment, but you have no clue as to the make-up of said investment and also how they plan to allocate between now and 2015.

My guess is that you are little early on this.


Internet Tough Guy's picture

Chinese are sure astute investors, buying all those Treasuries, and doing the sweet investment deals with VC and Blackrock right before the collapse.

Double down's picture

XIE is a very good analyst.  He has very fertile thoughts. 

Wages double within 5 years!!! (Holy smokes.)

Property prices do not fall because property is a source of finance for local governments.

(That is one icy embrase)  

Double down's picture

It may also be euro weakening as I understand that the Chinese take USD for payment, not the euro.

Gully Foyle's picture

Double down

This put me in mind of a little factoid I wrote on a while back:
Interesting Currency Fact
Earlier this week I was paging through the marked pages of a book I read a while back titled "Gold: The once and future money" by Nathan Lewis. Now this is not going to be a gold post, I got tons of comments over at Seeking Alpha for the blurb I posted last night.

I had marked this section for further thought:

A staff member of the IMF estimated that as little as 10-15% of all the US Currency held outside of banks is used inside the United States. The rest is being used outside the country--by foreign central banks, in dollarized countries, by travelers, smugglers, drug cartels, tax evaders, and foreign commercial banks--as the international currency of the world. Roughly two thirds of all the dollars in the world are in the form of $100 bills, a denomination almost never seen in the United States.

I would wonder just how much money is out there but there is just no way to know. And I do not mean just the smugglers, well, the drug sort anyway not the government types!


Horatio Beanblower's picture

"According to FT Deutschland, the EU is preparing itself for a Spanish bail-out (hat-tip, Open Europe). If Spain were to follow Greece, the money so far set aside by the eurozone states would be wholly inadequate,  says the EU President. The debt cancer metastasising across the Mediterranean; but, rather than seeking to amputate the tumour, the EU’s leaders are preparing for a course of chemotherapy: expensive, debilitating and of uncertain outcome" -

abemko's picture

With all due respect, China trading dollars for more substantial investments and "jaw-boning" the dollar, why is this news? The Euro stabilizing but caution on the dollar ... why is his opinion any more meaningful than Bernanke's or your's for that matter? I suggest the real issue is the analytical basis and strategic objective for these statements, both of which remain opaque.

Gully Foyle's picture


Ilargi: The cat is out of the bag (or Schrödinger’s box, if you prefer, to add some spice). And if not the whole cat, surely its tail is. Maybe French Prime Minister François Fillon spoke out of line, or maybe it was orchestrated, we’ll probably never know for sure, but the good soul brought the Euro down on Friday while at the same time confirming what The Automatic Earth readers have been able to read from me for a long time now. 

Which is: Europe has been building a concerted effort to bring down the value of the Euro since at the very least the beginning of 2010. And the effort has been remarkably successful. While Americans often tout the power of the Federal Reserve, or the US Treasury Secretary, the comparative value of the US dollar has risen hugely in the past half year, which turns President Obama's goal of doubling US exports in the next five years into a red-nosed type comic relief exercise. 

Mr. Fillon's "admission" leads some pundits to suggest that France and Germany are on different sides of an imaginary divide, but they haven't been paying attention. Germany’s economy is doing -relative to others- quite well, thank you very much, and many thanks to the falling Euro, and Angela Merkel has no reason to internally contradict Fillon's intentions, even though she may not have liked these to be out in the open. At this point it’s hard to guess when certain parties would like specific details known, even if Merkel looks like a musical director no orchestra member would or should like to clash with.

Mr. Fillon goes as far as saying that the European Central Bank (re: Berlin, Paris, Amsterdam) wants the Euro to achieve or sink below parity with the US dollar. Personally, I doubt that. It may be just a statement designed to speed up the fall of the currency. I’m thinking Merkel et al are aiming for $1.10-1.15 for the Euro. But they may have decided to go for the jugular, it's possible. A strong currency is great in times of strong economies, whereas a weak one fits weak times. It all depends on how Berlin and Paris view the future, which is something they'll never ever let the public in on. Politics, after all, is about looking ahead in silence. 

Not that these people have some sort of absolute control, mind you. What's happening is that they have no choice. A very similar thing as applies to currencies in weak vs strong economic times also holds true for the relative value of exports to national economies. And I’ve talked about this before: very few people seem to understand that in bad economic times, where a lot of debt is involved, the relative values of exports rises exponentially. 

What you can’t sell, you have to borrow, to put it into an albeit simplified way. We now see even Nouriel Roubini, who's been hiding in a dark humid doom corner over the past year, come out and say that a weaker Euro might save the Eurozone. Which, to wit, is what I’ve been saying all along: in order for Germany to save the union, and to bail out Greece and others, it will have to sell products, it’s really as simple as that, no big major mysteries there.

US Treasury Secretary Timothy Geithner calls for the opposite of all this: more domestic demand in the main Euro countries. Still, is he really that witless, or have the banks he works for in real life made trillion dollar bets on the very outcome we’re seeing develop before our eyes today, the US dollar doing precisely what no US manufacturer wants? That one I can’t answer. Geithner may not be the brightest light of day, but to presume he’s that thick is quite a different matter altogether. Still, yes, that would mean that he is actively trying to strangle US industrial capacity. Not a trivial trifle matter either.

A Euro at $1.40 or even $1.50 as always a threat to many parties, if only because many US products are assembled in 2 cents an hour economies. Parity? Perhaps, if Merkel et al are clear enough on the depth of the -inevitable- coming downfall (we don’t know what and how much they know). There would be a huge psychological advantage to a $1.10 exchange rate, but if Merkel knows what I do, and acts on it despite potential election losses (which I have no worries about), the decision may already have been made to aim for below parity, and the US interests have no choice but to rake in the profits from the resulting short trade. 

And as we saw on Friday, Europe has a seemingly endless series of aces up its sleeves to achieve what it desires. Out of the blue, Hungary, which is not even a member of the Eurozone, became a major news item because of its awful economic prospects. That's where you get to think: look, the entire world, all of it bar none, has awful economic prospects. Why Hungary? And then the Euro went to below $1.20 for the first time in over 4 years. And you go: Ahhhh, Hungary, right!!, and next week Bulgaria, Romania, Latvia. By now I’m sure you get the idea.

And Washington will come back with: but we have New Jersey, and California, and Illinois, and they’re worse off than Eastern Europe by a mile, and we want exports too. Yeah, but the US has so far kept up the apperance that its central and centralized government will make good on all debt all over the 50-odd states. And as long as it keeps up that charade, Merkel wins. Whereas once that charade can no longer be maintained, there’ll be as many valid concerns about the survival of the USA as there now are about the European Union. 

We're entering the reality phase of the economic downturn. The first party to recognize that has a head start. At the same time, as I indicated earlier, the major banks that own US and -most of- Europe politics and politicians may well have realized that a long time ago, and divvied up the loot well in advance. Still, go long the Euro at this point in time? Not me.

And then again, who's thinking about money when you see an entire and fast expanding (Louisiana, Alabama, Misissippi, Florida, Georgia, Carolina's and more) local ecosystem and economy go up into less than nothingness? What are our prorities, exactly?

ZackAttack's picture

If China's SWFs had the sense that god gave to a wood duck, they'd be buying oil properties (such as oil sands), mineral resources in South America and access to arable farmland in Argentina versus worthless US and european paper.  

Observer's picture

Oil properties in S.America are simply rented out to foreigners from time to time before being taken back a.k.a re-nationalisation. They just call it 'buying'. Same with arable farmland in Argentina unless you choose the right 'President' to pay off. Sometimes it is too expensive to pay off! Hell, their 'President' expropriated private Pension funds to pay for her deficit. So much for property rights

ZackAttack's picture

For that reason, I understand they have inconspicuous boots on the ground in both Nigeria and Ecuador for this very reason.

Yes, it is the history of Latin America to follow commodity triple waterfalls.

Leo Kolivakis's picture

The name of the game is reflation. China will recycle all those dollars right back into US markets, and now they're going into private equity funds. You can dismiss this article, but I see it as bullish. If you see it as bearish, please explain why in coherent English.

Internet Tough Guy's picture

China buying into private equity again? I guess they didn't learn from their Blackrock lesson. This time it's different, right Leo?

Leo Kolivakis's picture

Yeah, I'm not sure what the gig is with PE. I am less bullish on private markets, more bullish on specific sectors of liquid markets. Stay away from illiquid hedge funds strategies. Those strategies are dead.

ZeroPower's picture

As dead as your solar strategy?

Hdawg's picture

Smack head or devil's advocate ... either way Leo's just noise

Ned Zeppelin's picture

Seems like a selling opportunity today after yesterday's inexplicable rebound of the US equities. Although anymore, this just seems quantum level jitters on a market that is overall headed for a decline.  So sell on the rebounds.  I note with interest the Chinese official's apparent prediction that interest rates on US debt will rise (thus yielding his projected FX losses).

When you need supposed "good news" from China to make the US market rise, you are in some deep doo-doo.

Insert witty title's picture

Sorry but who cares what official anywhere says? Isn't the premise of this site that the information rather than the personality is paramount? Information such as budget deficits, debt/gdp, government actions to impose more regulation for example?

Bernanke's testimony yesterday case in point.


Sudden Debt's picture

even when their house would burn down, they would still say temperatures in the living room where at average room temperature.

Nihilarian's picture

 My feeling is that it's right around the corner.

Quote of the year! Plus, the best part is, you'll be able to use it in perpetuity for the next decade.

akak's picture


Leo Kolivakis's picture

Laugh all you want akaka, I'll be laughing all the way to the bank:

deadparrot's picture

Why don't you show us the 6 month chart? Damn! Nevermind.

The_Euro_Sucks's picture

hehe wanted to say that. Start of this year $18.40 ish, begin may $13.90 ish, begin june $10,00 ish

FreddyInBangkok's picture

that an FSLR h&s? extended but still good.

DoChenRollingBearing's picture

Leo!  Shame on you for displaying such low grade financial porn as 100 Euro notes.

The LEAST you could do would be to show 500 Euro notes!

Pretty women too are OK.


Oh, re your topic, hell I don't know.  China / European dynamics are beyond my scope to comment even semi-intelligently.