CIC’s Lou Sees Growing Risk of Euro-Zone Breakup, WSJ Reports

China Investment Corp. sees growing risks of a breakup of the euro area, the Wall Street Journal reported, citing Lou Jiwei, chairman of the Chinese sovereign wealth fund.

CIC reduced its exposure to European peripheral countries a long time ago without incurring any losses and has cut its holdings of stocks and bonds across the continent, the newspaper reported today, citing an interview with Lou. He didn’t identify the peripheral nations, according to the report.

“There is a risk that the euro zone may fall apart and that risk is rising,” the Wall Street Journal reported Lou as saying. “Right now we find there is too much risk in Europe’s public markets.”

Europe isn’t ready to issue any common euro-zone bonds and any such debt won’t be a suitable investment for CIC because the risk is too big and the return too low, the report said, citing Lou. The fund will continue to invest in Europe by focusing on private equity and direct investment including infrastructure, Lou was cited as saying.

China should open up its capital account and make the yuan a fully convertible currency, which would lead to a natural diversification of its foreign-exchange reserves and it may be time to do so after the European debt crisis ebbs, the report said, citing Lou’s comments.

The European Union is made up of 27 member states.

--Zhang Dingmin. Editors: Tomoko Yamazaki, Andreea Papuc

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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