Beijing is considering restructuring
China Investment Corp (CIC), its US$300 billion sovereign wealth fund, in a
bid to boost accountability, two sources with knowledge of the plan said.
The proposed re-organisation, which is
bound up with manoeuvring among China's political power brokers ahead of the
Communist Party's five-yearly congress in 2012, could result in a sharper
focus by CIC on its overseas portfolio.
One proposal calls for CIC to be broken
up into three parts, two of which would focus on equity and strategic
resources investment, one source with direct knowledge of the matter told
Reuters, requesting anonymity because he was not authorised to speak to
reporters.
Another suggests CIC and its wholly owned
subsidiary, Central Huijin Investment Ltd, part ways, a second source said.
Huijin, which holds Beijing's stakes in
key domestic state-owned financial institutions, came under CIC's wing when
the latter was set up.
'There is no timetable for CIC and Huijin
going separate ways,' said the second source, who also requested anonymity.
'The State Council has yet to make known its position.'
China's sovereign wealth fund is
accountable to the State Council, China's Cabinet, which has the final say
on the planned restructuring.
CIC and the finance ministry had no
immediate comment.
Analysts say making Huijin independent
could elevate its status within the Chinese bureaucracy, giving it more
power as the largest shareholder in China's biggest banks.
'There are huge differences between
international investments and domestic financial asset management. So there
is good reason for the two to separate,' said Guo Tianyong, a professor with
the Central University of Finance and Economics.
For its part, CIC could find that without
links to Huijin, it can make a stronger case to foreign governments that it
should be treated as a commercial entity rather than as a policy arm of
Beijing. A stronger focus on international investments could also mean the
fund stands a better chance of being handed another chunk of China's US$2.45
trillion worth of international reserves, which are managed conservatively
by the central bank.
CIC was set up with the aim of seeking
higher returns from riskier investments for part of the country's stockpile
of foreign exchange, by far the largest in the world.
To create CIC, the Finance Ministry
issued 1.55 trillion yuan (S$307 billion) in special bonds to buy about
US$200 billion of the reserves from the People's Bank of China. That sum had
grown to almost US$300 billion by the end of 2009, thanks largely to the
rising value of Huijin's bank stakes, and CIC has been lobbying for
additional funding as it scours the globe to secure natural resources for
China's thrumming economy. --
2010 September 10 Reuters
(BEIJING)
There was no champagne, no music, and just a few young women in traditional
dresses.
The low-key ceremony that marked the
launch of China Investment Corp last weekend could reflect the cautious
manner in which Beijing intends to unleash the largest fund in history onto
the world's financial markets.
The much-anticipated corporation will be
in charge of US$200 billion - nearly one-sixth of the nation's enormous
foreign exchange reserves - but it will not flaunt its wealth, observers
said.
'They're going to be passive investors.
They're going to take minority shares. And the most important thing is going
to be safety,' said Chen Xingdong, Beijing-based chief economist at BNP
Paribas.
CIC was launched on Saturday at a time of
growing unease among some western politicians who fear sovereign wealth
funds will build up stakes in leading companies that will give them
influence in politically sensitive sectors.
Lou Jiwei, a respected former vice
finance minister who heads the fund as its chairman, is evidently alert to
the concerns.
He said that CIC would respect
international practices and norms as well as the laws and regulations in
countries where it invests.
CIC would set out to groom a good image
of the company, Mr Lou said: 'We will increase our firm's transparency on
condition of not harming our commercial interests.'
Abroad, CIC would have a diversified
portfolio of mainly financial products, while at home it would inject funds
into financial institutions, he said.
'The strategy of CIC will be based on
active, sound management to maximise returns for our shareholders within an
acceptable bound of risk.'
The fund is tasked with diversifying and
maximising returns on part of the China's huge forex reserves, which tops
US$1.3 trillion and is growing by the day.
It is estimated that about 70 per cent of
this enormous amount is placed in US dollar assets, including Treasury bonds
that are as low-yield as they are safe.
To do better than this, the company will
not have to invest flamboyantly.
Even so, the modesty that attended the
inauguration of the company suggested a deliberate strategy to soothe
concerns abroad.
The emergence of a US$200 billion
juggernaut has already raised concerns in some quarters over the potential
impact on world financial markets.
The worst thing China could do would be
to sweep into, say, the world energy markets and make a series of
high-profile acquisitions of oil companies or gas fields, some said.
'If they do not end up controlling
foreign companies, there wouldn't be many political issues,' said Sun
Mingchun, a Hong Kong-based economist with Lehman Brothers.
'It's a good idea to stress the business
side of investment rather than the political side and let the outside world
feel it is a business decision, not a political one.'
If the company has indeed decided against
the bull-in-a-china-shop approach, it may have got off to an
uncharacteristic start.
In May, long before the fund had even
been officially established, it invested US$3 billion in US private equity
group Blackstone, triggering questions about just how aggressive this
newcomer was going to be.
Analysts said that the Blackstone deal
with its 10 per cent exposure is not likely to be typical of the kind of
investments the company will make. They expect the company to prefer
smaller-risk ownership of one or two per cent in listed companies.
Even so, behind the intentionally
cautious attitude, there is little doubt among observers that this is a
creature with the power to rock world markets.
'The company will be a formidable force
on the global financial market. The fund will be the largest of its kind in
the world,' said He Fan, an economist with the Chinese Academy of Social
Sciences, a Beijing-based think-tank.
The emergence of CIC, he said, was part
of a shift in the world economy. Ageing societies in the West have to sell
out of some of the assets they have accumulated in the past, and this is
where China is taking over, buying up assets for when it itself becomes a
greying society in the not too distant future, he said.
- 2007 October 1 REUTERS AFP
Foreign investors may not get control
in China brokerages
New rules to cap foreign holding at
20%, say sources
China may prevent
foreign investors from taking control of domestic brokerages, a setback to
Wall Street's ambitions to tap the world's fastest-growing stock market,
people familiar with the planned rules say.
Overseas companies will be limited to
owning stakes in publicly traded brokerages, with the foreign holding capped
at 20 per cent, said the two people yesterday, asking not to be identified
before the rules are approved. The China Securities Regulatory Commission (CSRC)
has submitted the draft rules to the State Council, the nation's highest
decision-making body, they said.
Goldman Sachs Group Inc and UBS AG are
the only global securities firms that control investment banking units in
China, where 47 million new stock trading accounts have been opened this
year. The new rules would prevent rivals such as JPMorgan Chase & Co and
Merrill Lynch & Co from obtaining controlling stakes in the nation's
brokerages.
This is 'a step which will limit
foreigners' ability to take control of a broker in the same way as Goldman
Sachs and UBS', said Tim Ferdinand, vice-chairman of Euro Securities Ltd,
the Chinese investment banking venture of CLSA Ltd. 'Foreign investment
banks will have to accept that the Chinese are not going to open their
financial markets quickly.'
China only allows domestic brokerages to
trade shares, so direct investment by foreign companies is the only way they
can tap that trading revenue.
There are 125 million trading accounts in
China. In the US, brokerages manage more than 83 million accounts with total
assets of US$3.85 trillion, according to 2006 statistics from the Securities
Industry and Financial Markets Association.
Chinese Vice-Premier Wu Yi pledged during
a May meeting with US Treasury Secretary Henry Paulson to open China's
securities industry to overseas firms. China said it would stop taking
applications for new investment or licences in September last year, saying
domestic securities firms needed time to get ready for competition.
'UBS and Goldman were special cases,'
said Liang Jing, a Shanghai-based analyst at Guotai Junan Securities Co.
'The restriction of licences doesn't meet the general expectation of a
full-scale opening up when one uses those two foreign investment banks to
compare.'
Previous investments in Chinese
securities firms were made by special arrangement with regulators.
While foreign ownership of Chinese
brokerages will be capped at 20 per cent, overseas firms can hold as much as
33 per cent of their investment banking ventures with Chinese partners, the
people said.
That will allow them to directly engage
in underwriting stock and bond sales, the people said, adding the ventures
may be granted brokerage, asset management and advisory licences over time.
-- Bloomberg
2007 October 4
