Much of the investment by China’s sovereign wealth fund last year was into public stock and bond markets, but in 2013 it plans to allocate more directly to real assets and property.

China Investment Corporation (CIC) sees a “slow recovery” taking place this year, said Lou Jiwei, chairman and chief executive of the $400 billion fund, speaking at the Asian Financial Forum in Hong Kong this week.

As a result, it has reverted to its “original” asset allocation model, he notes, after having underweighted Europe and overweighted the US in 2012. CIC is also overweight emerging markets currently.

The fund is underinvested in manufacturing and overexposed to financials, and intends to redress that balance, says Lou, who adds that it expects China to maintain its swift growth in 2013.

However, despite the improved outlook, he flags concerns. “We are seeing a slow recovery, but that doesn’t mean there’s not a possibility of recession,” says Lou. “There are still a lot of politically related risks.

“In the US they may have escaped from the fiscal cliff, but there is still a small cliff to overcome, although the risks are not really very great.”

The situation in Europe is also better than it was and the risks are smaller, he says. However, the recovery has not really kicked in, notes Lou, and there are still a substantial number of risks associated with financial discipline and possible recession.

“There are other risks as well,” he points out. “It seems Japan has been forgotten, but there are definitely risks there.”

Lou expressed concern about whether Japan’s quantitative easing programme – bond-buying activity that seems set to become more aggressive in the light of prime minister Shinzo Abe’s return to power – is likely to be successful. “So we are very, very cautious on Japan.”

Asked his view on US Treasuries, Lou said they are “still a safe asset right now, but you have to pay a big price to buy such safe assets”.  Moreover, as the US economy continues to recover, interest rates will rise sooner or later, pushing down the value of those sovereign bonds.

“If you don’t buy them, your risk aversion capability will be affected, but if you do, then the returns won’t be very good,” he notes. Whether to buy US Treasuries is therefore “a very difficult decision”.

Speaking on the same panel as Lou, the vice-chairman and CEO of investment firm Fosun Group, Liang Xinjun, said he also expects China’s to continue to set the pace in terms of economic growth, but he raised concerns about potential obstacles. He flagged worries ranging from retirement funding issues to concerns around potential social unrest.

Starting from 2019, China’s working population will be dropping in absolute terms, he says, meaning the amount available for spending to support an increasingly ageing population will be dropping. In addition, growth of the labour class and spare labour capacity will cause problems.

Moreover, increasing awareness among Chinese consumers of pollution and low-quality water are likely to result in crises, Liang adds.

He also argues that after the next five-to-seven years, growth in the services and financial sectors will slow, resulting in lower economic growth.