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China to invest in Western infrastructure: can euro bonds be far behind?

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China Investment Corporation, the country's main sovereign wealth fund, will begin to invest in the infrastructure of developed nations, chairman Lou Jiwei says. This naturally raises the question of whether China will follow with massive purchases of euro zone bonds. After all, investing in the infrastructure of a country is no different than investing in the debt of the country. If an investor did not expect the economy of a country to grow, why invest in the infrastructure?

Such a move would also make economic sense for China's exports. China does not need Western debt. But it does need Western economic development. About 40% of China's gross domestic product is still generated by exports to Europe and the United States. Further developing the infrastructure of these countries will obviously lead to greater economic growth and more demand for Chinese goods.

Ironically, of course, this is the exact position that Western investors have taken regarding emerging markets over the last few decades. China would be financing the development of the developed world. It could also be contended that financing infrastructure projects in Europe by the China Investment Corporation is a de facto rescue package of bond buying by Beijing as it saves the domestic authorities from having to float debt issues to fund the internal development instead. Still if China is going to underwrite the infrastructure of these countries, it would also be prudent to finance the rescue of the economies through the backing of an actual debt rescue package. It does little good to finance massive projects if the economy collapses due to a debt crisis. Of what use would a world-class harbor in another country be to Beijing if the country cannot afford any Chinese imports, or interest payments to service the debt, due to a deep recession induced by a credit crisis? China already has $3.2 trillion in foreign currency holdings, most of it in U.S. and euro debt. Financing the development of infrastructure projects and rescue packages would protect and increase the value of that investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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