China’s sovereign wealth fund has singled out global agricultural investments as a particular area of interest, with other favoured sectors including information technology, real estate and infrastructure.
“We are interested in agricultural industry – not only in emerging markets but also in other markets,” said Li Xiaopeng, chairman of the board of supervisors at China Investment Corporation. “We hope agricultural investment can provide CIC with stable returns over the long term.”
Speaking at the Credit Suisse Asian Investment Conference yesterday in Hong Kong, he said the $575 billion fund will continue to explore opportunities in overseas market.
In an attempt to address concerns about overseas investments by sovereign wealth funds into strategic industries, Li asserted that CIC invests for financial reasons, and does not seek control over portfolio companies.
Meanwhile, Li was upbeat on China’s economy, despite weak projected first-quarter GDP growth, following downward revisions by economists. This is due to seasonal factors, he argues, and the economy will trend up later in the year.
“In the first quarter, there are many festivals, conferences and gatherings. People really start to work from February onwards,” Li adds.
The GDP growth figure will rise in the second quarter and increase significantly in the second half, as this is the normal trend, he suggests, without providing figures. In the long term, China can maintain medium to high growth, added Li. One push factor is the urbanisation process, which will boost the country’s consumption.
Others were less positive. Clouds remain over China’s growth prospects this year, said Tao Dong, Credit Suisse’s chief economist for non-Japan Asia, also speaking at the event. He suggested the market is over-optimistic that government stimulus measures will be sufficient to buoy GDP growth.
The main problem is a slowdown in consumption, argued Tao. Citing Chinese sausage as an example, he said sales are down 50% even though the price has fallen by 50%.
Chinese authorities has been waging an anti-corruption campaign, which has resulted in many state-owned enterprises cutting back on expenses, he said – this has hammered consumer demand.
As a result, Credit Suisse has lowered its projection for China’s first-quarter GDP growth to 6% from 7.4% on a quarterly basis, and to 7.3% from 7.7% on a yearly basis in January.
The government has launched some stimulus measures this year, such as the National Development and Reform Commission approving five railway projects, and more are anticipated. Tao also expects the People’s Bank of China to reduce the required reserve ratio by 50 basis points in the second quarter to help boost the economy.
However, the market may be too optimistic, he said, adding that these measures may stabilise growth, but it is unclear how much they will boost China’s GDP.
Moreover, the current administration is less likely to launch stimulus packages than the previous one, said Tao. “So there is downside risk for the growth.”
There is also downside risk posed by the government debt market, of which around Rmb3.5 trillion will need repaying this year, he estimates, meaning the second half of 2014 to the first half of 2015 is likely to be the peak period for potential defaults.