Beijing to hand $200bn to CIC
By Henny Sender,Jamil Anderlini in Hong Kong, in Beijing FT.
China Investment Corp, the sovereign wealth fund, will soon receive $100bn to $200bn in new funds from the government, according to three people familiar with the matter.
CIC, which has fully allocated the $110bn it had available for offshore investments, is to get the new money as Beijing seeks to reduce its exposure to US government debt. A number of senior officials, including the central bank governor, have said China’s foreign exchange reserves are beyond “reasonable requirements”.
The reserves, already the largest in the world, grew by nearly $200bn in the first quarter to top $3,000bn for the first time. In the past week, two senior government economists have said China only needs reserves of around $1,000bn.
CIC was established in 2007 with the mandate to invest some foreign reserves in riskier offshore assets. At that time, China had less than $1,500bn in its foreign exchange coffers. The fund suffered early missteps, investing in US private equity firm Blackstone and in Morgan Stanley before their shares plummeted in the financial crisis. But people who deal with CIC say it has grown in professionalism and confidence.
“They had a lot of growing pains in the beginning but now they know more,” says one private equity executive.
In addition to handing more money to CIC, Beijing is considering using the reserves to set up new special-purpose funds that would invest in sectors such as energy and precious metals, as well as a foreign-exchange stabilisation fund, according to a Chinese media report on Monday, citing unnamed sources.
Debate has raged among policymakers in Beijing over how much more money CIC should receive, while the central bank and the ministry of finance have fought a bureaucratic turf war over whether the central bank should have more control over the fund. “There has been bureaucratic bickering for a year,” said one person familiar with the matter. “It has been difficult to resolve.”
The central bank had proposed that the State Administration of Foreign Exchange, an agency under the central bank that manages the forex reserves, either invest directly as a shareholder in CIC or hand CIC a mandate to manage a certain amount of reserves on its behalf.
Those suggestions were rejected, according to people familiar with the matter, and CIC will now probably receive the money from the finance ministry, its shareholder, as occurred when it was initially capitalised in 2007.
After initial investments in western financial institutions CIC has focused on offshore investments that take advantage of China’s economic boom.
