CIC’s Jin Says Others May Follow If Greece Leaves Euro

Greek Exit Aftershocks Risk Reaching China as Global Growth Hurt
The Greek national flag, left, flies alongside a fraying European Union (EU) flag in Athens, Greece, on Friday, Feb. 17, 2012. Photographer: Simon Dawson/Bloomberg

Jin Liqun, chairman of China Investment Corp.’s supervisory board, said European authorities have shown a “lack of leadership” on the euro area’s debt crisis and other countries may leave if Greece exits the single currency bloc.

“Ever since the debt crisis broke out, there has never been a master plan for a resolution,” Jin said at an event hosted by the Centre for Policy Studies in London late yesterday. “The core members of the monetary union certainly have to keep an eye out for possible copycats should the Greeks be allowed to escape from the crisis unscathed.”

Greece is set to hold a second national ballot next month after inconclusive elections on May 6 increased speculation that the nation may leave the 17-nation euro area. CIC President Gao Xiqing said on May 9 that the sovereign wealth fund has stopped buying European government debt on concerns about the region’s financial turmoil.

“Too much time has been wasted on endless bargaining on terms and conditions for piecemeal bailouts,” Jin said. “You cannot say there is no strategy altogether, but short-termism features prominently in the process for negotiations for bailout.”

Long-Term Solution

Answering questions after the speech, Jin said a longer-term solution is needed as previous negotiations on bailouts have only eroded investor confidence.

“The Greeks should be encouraged to work harder, but they should also be given a respite for much longer,” he said. European leaders “should say, ‘okay, we give you 10 years to work off your debt,’ then the market would be confident because this is realistic. If the Germans or some other core countries would tell their people, ‘we’ll give Greece a 10-year respite,’ probably everything would be sorted out.”

The Organization for Economic Cooperation and Development said yesterday that Europe’s crisis risks spiraling and seriously damaging the world economy. The warning came as European Union leaders prepare to gather in Brussels to discuss how to revive growth and grapple with the Greek impasse.

“I do not think that all possibilities have been exhausted for keeping Greece in the monetary union,” Jin said.

Fair Treatment

CIC, with an estimated $440 billion in assets, is the world’s fifth-largest country fund, according to Sovereign Wealth Fund Institute. Jin said cooperation with Europe is important for China and “some invisible impediments” to Chinese investments should be removed.

“European countries should treat Chinese companies fairly and equitably,” he said, “This is the time when liquidity is crucially needed in this part of the world, particularly in distressed parts of the euro zone.”

On the outlook for Europe, he said that while spending cuts are “necessary to keep the national balance sheet in order,” they should be coupled with “spending to jumpstart growth.”

Asked about yuan, Jin said it is on “its way to become an international reserve currency,” though “full convertibility” will take “some time.”

“Renminbi, probably for the next 10 or 20 years, will play a more important role, but compared to euro, dollar, it will still be very insignificant,” he said. International transactions in the currency “could go up to 10 percent or 15 percent over the next 10 to 20 years,” up from less than 1 percent currently, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE