CIC's enormous position reflects its taking strategic stakes in public companies, rather than buying shares on the secondary market.

China Investment Corporation was the biggest buyer of Asian equities in 2009, buying a net $98 billion last year and now owning $211.8 billion worth, says US research firm Ipreo, which bases its data on public filings dated from the fourth quarter.

China may restructure sovereign wealth fund to sharpen focus

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 

Enter the US$200b Chinese dragon - to little fanfare

(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


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