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Chinese investment giant warms to US shale revolution

Chinese investment giant warms to US shale revolution Ian Fraser

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Economic growth in the developed countries will in future outpace that in emerging markets, the chairman and chief executive of China's largest sovereign wealth fund told the Asian Financial Forum on Monday.

Ding Xuedong, who took over the reins at China’s $575 billion China Investment Corp (CIC) fund last July, said western countries had completed the post crisis deleveraging process, whereas progress with deleveraging has been much more patchy in the emerging markets.

A former of deputy secretary of the state council and a former deputy finance minister of China, Ding was regarded as a surprise choice when he was appointed to the CIC role in July 2013. His remarks are important since they are seen as a pointer to the future direction of CIC’s investment activity over the next two to five years, and therefore, to an extent, how China sees the world.

Ding told some 2,400 delegates at the Hong Kong Convention and Exhibition Centre that CIC sees the US’s shale gas sector as rich in potential:

“The US is one of our focuses and shale gas is one important topic,” he said, adding. “The US economy has recovered rather strongly.”

In August 2012, CIC made a $500m investment in Cheniere Energy's $10bn shale gas export terminal in Cameron Parish, Louisiana. In a recent op-ed published by Project Syndicate hydrocarbons expert Daniel Yergin wrote that "American shale gas is changing the balance of competitiveness in the world economy, giving the US an unanticipated advantage."

Mr Ding also said that Europe was on the road to resolving it debt crisis and that CIC saw attractive opportunities for investment in European infrastructure, real estate and SMEs.

By contrast, Ding said that far fewer developed countries still have a “heavy debt burden” and were likely to experience difficulties when the US ends its quantitative easing program.  He warned that emerging market countries that:

1) Rely too much on external capital
2) Have weaker economies
3) Continue to be reliant on commodities

will be the most economically vulnerable when the Federal Reserve's taper peters out.

Overall, however, he maintained a positive outlook on Asia for the longer term, and particularly China, thanks to the cheaper labor costs, its large population and strengthening domestic consumption.

Ding highlighted several decisions made at the Third Plenum under newly appointed Chinese president Xi Xinping as likely to give the Chinese economy a boost. He said these included the decision to level the playing-field between private companies and state-owned enterprises (SOEs) and to invest in the railway network in western China. He said other positives that emerged from the Third Plenum included the creation of a free-trade zone in Shanghai and the decision to open up  China’s healthcare sector to foreign investment.

Even though there was consensus among speakers in the opening sessions of the AFF that the days of double-digit economic growth in China are over, there was optimism such reforms would enable China to continue to grow sustainably over the longer term.

CIC, founded in 2007, invests a portion of China’s vast foreign-exchange reserves overseas. The fund opened its office in Toronto, its only foreign outpost, in January 2011. Ding’s remarks suggest it may also feel the need to open an office somewhere in the US.

Last week French oil giant Total declared it would invest up to $50m in the shale gas sector in the UK since "fracking" is not possible in France.

Ian Fraser travelled to Hong Kong as a guest of the Hong Kong Trade Development Council.

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Tags: Asian economies , Asian Financial Crisis , China economy , china future , China Investment Corp , european sovereign debt , European Union , fracking , future of china , US
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