Earlier, I detailed how Chinese companies have significantly increased their FDI in Europe. Although this trend is likely to continue, the Chinese are thinking twice about their ownership of European securities and bonds. Lou Jiwei, the Chairman of China's sovereign wealth fund, the China Investment Corporation, recently expressed dismay about the European sovereign debt crisis. Lou Jiwei stated that "there is a risk that the euro zone may fall apart and that risk is rising." Moreover, the CIC is liquidating various stocks and bonds across Europe.
Complicating China's desire to scale back its exposure to the European sovereign debt crisis is the increasing dependency of, among all things, European municipalities on credit from Beijing. As noted in an article by the WSJ, European banks are cutting their lending to municipalities, a development which has led to cash-strapped municipalities knocking on the doors of such Chinese financial institutions as the China Development Bank.