China's giant sovereign wealth fund ready to spend NZ$6 bln on NZ assets and government bonds

China's giant sovereign wealth fund ready to spend NZ$6 bln on NZ assets and government bonds

Chinese flags at Civic Square in Wellington/SuperCat/Flickr

By Gareth Vaughan

China's enormous sovereign wealth fund, the China Investment Corporation, may have set aside up to 1.5% or about NZ$6 billion of its massive foreign exchange reserves to invest in New Zealand assets, including government bonds, companies and potentially dairy farms.

The 1.5% figure was suggested by a well placed source, alongside the likely scenario that the China Investment Corporation has been a heavy bidder of late in the bond tenders run by the New Zealand Debt Management Office (NZDMO), the government's debt manager. The China Investment Corporation itself is keeping mum with interest.co.nz's requests for comment, perhaps unsurprisingly, met by a deafening silence. It is also thought to have allocated 2% of its reserves, estimated at well over US$330 billion, to invest in Australia.

Set up in 2007 to invest some of China's now more than US$3 trillion in foreign exchange reserves accumulated through trade surpluses, the China Investment Corporation is thought to have been shifting some of its vast resources away from US dollar assets while the US Federal Reserve undertakes its quantitative easing policy, driving the greenback down, and America's economy struggles to recover from the global financial crisis. The China Investment Corporation is among the world's biggest sovereign wealth funds with about US$332 billion in assets.

Key says we're borrowing from China

What we do know is that China has been buying our government debt, being sold in record volume in recent months. Prime Minister John Key singled China out in a post Budget interview on TV3's Campbell Live as a country New Zealand is indebted to.

Asked about reduced government contributions to the KiwiSaver scheme Key said: "The Government this year is going to put NZ$1.1 billion into KiwiSaver and we're borrowing that money. So I say to New Zealanders we can carry on doing that if you want," said Key. "So we can carry on borrowing money from China like we do and putting it in your KiwiSaver account, but that leaves a weaker government balance sheet for New Zealanders."

We also know the NZDMO is issuing NZ$20 billion of debt in this 2010/11 June financial year as it soaks up strong investor demand and raises money to help rebuild Christchurch after the devastating February 22 earthquake. That NZ$20 billion is equivalent to NZ$4,500 for every man, woman and child, or 10% of the country's Gross Domestic Product (GDP).

And we know that China's credit rating agency, Dagong International Credit Rating Company, has New Zealand placed seventh on a ranking of 50 countries credit ratings. We're behind just Norway, Denmark, Luxembourg, Switzerland, Singapore and Australia, although our ratings are identical to Australia's. The 50 countries covered account for 90% of the world's GDP.

So who holds our government bonds?

As for the ownership breakdown of government bonds, the Reserve Bank does track this in terms of the types of owners such as state owned enterprises and registered banks, and surveys a number of ways of viewing offshore holdings, or non-resident ownership. However, the NZDMO itself takes this data with a grain of salt.

Andrew Turner, the NZDMO's head of portfolio management, told interest.co.nz the Reserve Bank data offers useful information around trends.

"But in terms of a precise measure of the holdings, I don’t think you could use them for that," Turner said. "Because so many of the bonds are held by custodians and the like."

Turner says the NZDMO doesn't have a great deal of knowledge of who holds government debt, although it has recently said offshore investors are buying about 60% of the bonds it issues.

"What we really get is some anecdotal information from the banks who intermediate the transactions, and then from some of our own investor relationships as well.," says Turner.

"But even then we may not end up talking in a great level of detail about specific holdings because all investors can move their portfolio around in the secondary market. (And) the bidder banks could be bidding on their own behalf or for clients that are interested in participating in the tender or to have an inventory of bonds they can sell."

The NZDMO would "love to" have better information on who is buying government debt because it would be "incredibly helpful" to know where the demand is coming from.

"This is probably something that a lot of sovereigns have a similar sort of issue (with), in terms of knowing exactly where their investors are," Turner says.

More travel for NZDMO staff includes trip to China with Bill English

In an attempt to gain better knowledge of their customers since the global financial crisis, NZDMO staff led by Treasurer Philip Combes, have been travelling more overseas, speaking at conferences and striving to leverage off the relationships their bank bond tender bidders have with investors.

Turner says this creates opportunities to talk directly with investors. Combes is currently in Asia with Finance Minister Bill English. And Combes also accompanied English on a visit to China last month where the Finance Minister met with officials from the China Investment Corporation.

Speaking at a Beijing conference last November, Combes said China had increased its holdings of New Zealand government bonds without providing any specific figures. And speaking at the same conference attended by English in China last month, Lou Jiwei, the China Investment Corporation's chairman, said the fund was still looking at European investment opportunities despite the problems the economies there face.  It's also eyeing Russia and it owns stakes in US private equity group Blackstone and investment bank Morgan Stanley.

Deep pockets could target any assets on the block

Aside from government bonds, the China Investment Corporation has pockets deep enough to buy any New Zealand asset on the block that takes its fancy, Overseas Investment Office (OIO) approval not withstanding. How about the 83.3% stake in Fonterra's biggest supplier, Dairy Holdings, currently on the block as a result of the South Canterbury Finance receivership? Dairy Holdings is attracting overseas interest as China's Pengxin International Group awaits the OIO's decision on its application to buy 16 central North Island Crafar dairy farms from receiver KordaMentha.

Elsewhere, high profile completed Chinese purchases in New Zealand in recent times include Agria Corporation buying a controlling stake in PGG Wrightson, and Haier helping rescue an ailing Fisher & Paykel Appliances by taking a 20% cornerstone stake. China's partly state-owned Bright Dairy also bought 51% of Canterbury's Synlait Milk dairy processing operation last year for NZ$82 million.

One thing is for sure, in an election year with the opposition Labour Party promising to introduce stricter controls on overseas purchases of New Zealand farm land , influential commentators like Brian Gaynor suggesting asset sales make New Zealanders "serfs in our own country, " and the National Party promising to sell minority stakes in state owned enterprises if it's re-elected, we're going to hear a lot more about foreign, especially Chinese, buying and/or potential purchasing, of New Zealand interests.

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Becoming slaves in our own country

 Hopefully our parliamentarians will listen to learn and avoid further destruction of our economy/ society.

 Listen to him and you know where we are going in NZ:   More dependency, more debt and less purchasing power for all of us – slaves in our own country.

http://www.youtube.com/results?search_query=A+prophetic+interview+with+Sir+James+Goldsmith+in+1994&aq=f

I fear a partial sell off is fait accompli Walter....the fast track is in full swing...which can only lead you to conclude our financial situation is far more dire than Billy Bob would have us believe...

But good on you ...go get em with a big stick.

I'm surprised this thread isn't humming yet ...still it's early yet. 

[ .... ahem , me me me , hmmmmmmmm ..... ]

I like Chinese

I like Chinese

They come from a long way overseas

But they're cute and they're cuddly , and they're ready to please

I like Chinese  ......

lets not be xenophobics and hypocrites.  We are too small, and too cold, for them to take seriously over Oz, US and the likes.  If it wasn't for them the Oz economy wouldn't like what it is at the moment.  If only they take up the taste of cheese and milk, lamb or wine, in addition to iron-ores we wouldn't  talking about this.

Only you could get away with it..GBH...but it's got potential...bring back the bouncing ball and we can all get ready.

 Sack underperforming ministers.

 His was right in 1994 – he’s right in 2011 – where are the decent NZjobs – GONE - never existed - look at the youth unemployment - shocking - yes build more prisons and extend the police force minister Joyce !

Infrastructure needs all imported and bloody building more roads – ministers making decisions destructing our economy/ society.

 http://www.youtube.com/watch?v=cX-CNqKR7t4

We all know you have a thing about Joyce, you do go on about him, which is strange because he is an ok guy.  About time you moved on, just get over it

None of these decisions are based upon what's best for New Zealand. It's all about what's best for those making the decisions. The decisions aren't made by New Zealand, or even a majority of New Zealanders. They are made by a few at the top who benefit financially from the decisions that are made. The majority of New Zealanders pay as a result of those decisions.

Key, English, Brownlee, et al, their corporation friends: All will come out much richer. The Ministers will become Directors, their luxurious future lifestyles guaranteed. Not so the rest of us.

Wolly, GBH, SK, and all the rest of the Money Is God crowd will howl about how this is somehow all the fault of bloody socialists - Helen Clark and Phil Goff in particular - yet won't utter a peep of protest in the direction of those who are selling them all out this time.

As Chairman of L.O.M.I.G. ( Lots of Munny is God ) I would point out that many of us have been scathing of the New Socialists Party ( formerly known as National ) , too ....

.... Never have , and probably never will , cast a vote towards JK .... [ party vote for ACT , electoral vote for Labour , in 2008 ! ]

The New Socialists were voted in , in 2008 , planking on the Old Socialists ( Labour ) idiotic social welfare agenda . ...... We cannot afford it !

 ....and Roger make sure you don’t give bloody “foreigners” ticks (points) for good comments and their tough stand on the NZgovernment - sacking their ministers.

 

By the way where are Les, John - the NZMEA and Selwyn on this interesting topic ?

Oh Amalgam you nasty person you...fact is I do not hesitate to sink my boot into the National govt bum when they deserve it..in this instance they have no option but to flog the IOUs to those prepared to pay...get the message Amalgam...they have no option....now you can kiss Helen's $#@! all you want but it will not change the facts that the govt we have today, regardless of quality...is trapped into borrowing thanks to the awful bloody mess left by Clark the artist and Cullen the financial wizz.

FYI news just out that China will be a big buyer of the European bailout fund bonds.

It has pushed the euro up sharply.

It's all about China diversifying out of US Treasuries.

http://www.zerohedge.com/article/euro-surges-news-chinese-white-knight-make-repeat-appearance-attempt-bail-out-europe-second-

 

“[Asia] is a region that has money to invest in the rest of the world,” Mr Regling said. “They don’t want to go only into one currency. They don’t want to go only into one asset class . . . They look at us and come to the conclusion it’s a good way to diversify.”

Chinese officials have expressed interest in investing in European assets as a way to diversify holdings in their sovereign wealth and other investment funds, which have historically concentrated on dollar-based assets. While Beijing has acknowledged it remains a significant holder in Portuguese and Greek sovereign bonds, Chinese officials have been reluctant to disclose where in Europe it will make investments.

Yep, we're all a slave to the smile-and-wave.

Perhaps someone could indicate on the chart above where Cullen ended and English began...

 Where are the tough questions and demands for real NZproductivity ?

 Question to the PM:

Why does the government allocate high tech orders to foreign countries, while at the same time NZunemployment, NZaccount deficit and NZbrain capital export them selves are high, NZyouth unemployment is on a dangers level and NZskill, NZresearch and NZdevelopment should be improved ?

We need to watch now because the power on this planet is not just floating west across the Pacific...it's moving west at the speed of a Typhoon. The usa is toast thanks to themselves. The Chinese are set to dominate world finances for the next few hundred years.

 "....indebted to..." These are the key words fellow Kiwi peasants...we are serfs regardless of the bullshit coming from the Beehive. We have ourselves to blame. Serves you bloody well right.

Here's full details of today's NZDMO auction. They raised the NZ$300 million they sought, but not in the way planned. The punters went for longer-term money  - http://www.nzdmo.govt.nz/securities/govtbonds/latestresults

Congratulations Gareth you've just made world headlines

http://www.bloomberg.com/news/2011-05-25/aussie-rebounds-from-3-month-lo...

I suppose you are cowering in your office now until BH regains his cool. You have managed not only to upstage him, but cause a rise in the Kiwi, which he has been trying to talk down for ever.

John,

Ha!. Happy to share the limelight. Great piece from Gareth.

You're right on the currency issue though. This is what happens when you borrow heavily offshore and you receive US$15 billion of reinsurance money.

Our own little version of the Dutch Disease...

Heaven help any sort of manufacturer or exporter that either isn't selling into Australia or isn't dependent on high protein prices (or both).

cheers

Bernard

Hello

In W2 the germans had NZ mapped out for growing pine trees.There was plenty off natives running around to do the work.

Nothing has changed as China has many mouths to feed.

China can fix many problems as NZ will have full employment.

China will need to call in these IOU's soon.

This would sort out the welfare problem,everyone has something to do.

Just think how fit everyone would be,no time to grow fat an lazy.

This would save the country millions,you would not need jails or police.

Because everybody has to work,This is how NZ will have to repay all the money we are borrowing.

China will have this country running as one big farm,fish,trees,meat,etc

This is NZ's future

 

Bridge on the River Kwai, or The Killing Fields?

 

 

Borrowing to buy assets that produce income - Great. Borrowing to piss it up against the wall to pay for things that shouldn't be paid for that don't produce income -  Not so good.

So China lends NZ bllions of US dollars and the US dollar continues it's slide into oblivion.  Clever folk these Chinese.

How's this for a plan?  NZ borrow quadruple what we need, immediately convert the excess US$ into physical gold, then sell it in a few years when the price skyrockets and clear some debt.  Anyone got a plan more likely to work? 

I have no problems with China buying New Zealand Govt. bonds. Neither do I have any problems with it buying certain types of New Zealand business, e.g., those not involved in our key strategic sectors such as infrastructure. It’s ability to buy New Zealand dairy farms on the other hand should be based solely on the reciprocity test, i.e., it can buy New Zealand land if, and only if, New Zealand citizens, permanent residents and New Zealand businesses can also buy land in China. And let China, as the larger partner, make the first move on extending that right to New Zealanders.

However it is important to remember that China is not a representative parliamentary democracy. It is a one-party dictatorship where decisions are made by an untouchable and powerful elite of communist party members. Most large scale international purchases undertaken by Chinese businesses are in fact ultimately done by the Chinese government, as it is the Chinese Govt that owns, maybe once or twice removed, those businesses. Therefore it is the interests and wants of the Chinese Govt. that ultimately prevail, and silly little Kiwis should not be so naive as to think that when push comes to shove that the Chinese govt. wouldn’t use its economic assets in NZ to bully the New Zealand govt. into various positions when it needs to. Sadly in my view there are simply not enough New Zealanders who really understand what they are dealing with in China and how China does business and has done business for centuries. It is right that we should proceed with care and caution, and be like the tortoise, possessing a thick protective shell that we can withdraw into when needed.

But thanks to the disgusting vanity of the nuclear free retards of this country (largely Labour Party and Green voters) we are in a wholly unacceptable position of vulnerability as they have destroyed our ties with the United States, which previously, would have given us some leverage in our dealings with China. So how we can protect ourselves from China’s infamous chauvinism and nationalism at different times in the future remains to be thought through.

Pretty much covered it for me David B....as a by the by I did respond to your post a night or two back....and when I said David L and I did not see eye to eye politically...I meant it..particularly that the" no nukes" was the beginning of a departure from a relationship I felt necessary to our security on more levels than one. 

Greg Pytel did a good article on China buying up the world a few months ago

 

 

China is buying up the world

 

(making the US a debtor of the whole world)

The US is hooked on China produced consumer products. The US buys massive volumes of goods from China and pays for them with the US treasury papers (the US debt). Can the US stop it? No. That would require moving production from China to the US which would take years (possibly decades) as it took decades to large scale of production of consumers goods to China. Never mind the fact that it could cause the US economy to collapse or at least massive hardships and internal implosion of home budgets as the US produced goods would be far more expensive that China's for the US consumers.

 

China is getting this massive volume of the US debt papers. These papers on the markets are AAA-rated and markets have to consider them as good as cash in international transactions. Otherwise the US dollar would have collapsed. So the 2/3 of world reserves that are held in the US dollars. No country can afford this to happen as this would have been a financial Armageddon. So China is buying access to the world natural resources, funding development of key infrastructure in many countries, investing in companies paying for it all with the US debt papers. Effectively China is using its cheap labour force to get as much as possible US debt papers which it uses to "buy" the world.

Come on NZ... Even if you don't plan on having children there's still no excuse for not considering future generations within this great country.

Again there's no problem with any country buying our Government Bonds and also buying into most business sectors here. In fact this should be encouraged. We should however under no circumstances sell any of our core infrastructure assets to any country that does not recripricate.

Our main core infrastructure asset happens to be our farm land. This makes up approximately 50% of total land in NZ. This land once sold to overseas interests is irreplaceable.

China is arguably soon to surpass the US as the next super power hence world's largest economy. 

As a brief example. If we were to liken NZ's relationship with China to say that of Rarotonga to NZ. (The population and fiscal diversity are in similar proportions). Rarotonga has never allowed New Zealanders to buy their land and as a result they own and operate a great little economy from which New Zealanders are happy to purchase from i.e in this case Tourism. The harsh reality of this is that if the Cook Islands had not had this policy New Zealand interests with vastly superior financial backing would have cherry picked their prime assets a long time ago and they would be working for us. I'm pleased for them that they had the forsight not to "sell the cow when the future milk is worth significantly more"

China has indicated clearly their intentions to buy large volumes of NZ farm land. They have the funds to buy as much (or all) of

 

 

You owe it to yourselves to read Brain Gaynor's article on "Serfs in our own county". David B has written some valid coment sabove as well. It's important we don't take an Agnostic approach to this issue which is currently at our doorsteps.

"We should however under no circumstances sell any of our core infrastructure assets."

Fixed that for you.

"Our main core infrastructure asset happens to be our farm land."

And that's why NZ as a whole will never amount to anything unless it grows some balls and develops industries and sectors that are based on something other than animal shit.

"You owe it to yourselves to read Brain Gaynor's article on "Serfs in our own county"."

That's the other reason NZ as a whole is unlikely to ever amount to anything: the majority of Kiwis are too bloody thick to work these things out for themselves.

Our fellow citizens tell each other that the only thing NZ can do well is agriculture, and agriculture is the only thing that will earn NZ any money, and investing in anything other than agriculture is risky and wasteful, because NZ isn't capable of anything except agriculture. So NZ must invest everything it has, and everything it can get, in agriculture, because it's the only thing we know how to do and it's the only thing that earns NZ any money, therefore it is the only thing worth investing in, because we can't do anything else. Got that, yet? Agriculture is the only thing NZ can do, the only thing that makes money for NZ, and the only thing in which we should invest. We aren't capable of anything else.

Oh, except buying houses from each other. You can't possibly lose doing that.

FYI via Stuff from Key's spokesman

http://www.stuff.co.nz/dominion-post/business/5062238/Kiwi-rises-on-repo...

A spokesman for Mr Key said yesterday that he was not aware of any CIC investment intentions regarding New Zealand bonds. However, Mr Key had been "increasingly seeing the Chinese as buyers of New Zealand bonds".

"Due to its domestic inflation pressures, China is rapidly emerging as one of the most significant buyers of foreign securities in the world, as witnessed by the huge holdings that they have in US Treasury bonds," the spokesman said.

By the way for all those Foreign Exchange traders reading this story.

It was put out as an exclusive in our daily subscription email at 9.36 yesterday morning.

That's 3 hours before it was published on this site.

Just think of all the money you could have made going long the NZ dollar...all through Thursday morning.

Here's the link to subscribe

https://www.interest.co.nz/paid-newsletter/8830

Please forgive my cheeky pushiness.

Helps pay the bills.

cheers

Bernard

No problem Bernard, I am more like thinking all it will pay on the short side sooner than you know. when traders realize that the Chinese fund is "investing"/dumping those US bonds, and NZ will be left holding the bag in exchange for all those precious assets.

Exactly why we should issue even more bonds and immediately convert them to hard assets, ride em up then sell.