The Beijing Times reports sovereign wealth fund China Investment Corp will suspend investments in overseas financial companies due to high investment risk, citing Wang Jianxi, a CIC executive vice-president, pictured here.

Wang Jianxi said, ‘As sovereign wealth funds have low risk tolerance, investment in overseas financial assets, such as Blackstone and Morgan Stanley , will be suspended.’

He said the CIC had invested less than half of the money it planned to invest abroad. After all planned investments are made, the ratio of high-risk financial assets will be diluted, accounting for a small portion of overall investment.

The CIC paid $3 billion for a 10% stake in the Blackstone Group in May ahead of the private equity group’s initial public offering at $29.605 per share. Those shares, which are still locked up, are now around $15.

Wang Jianxi said the CIC does not pay much attention to short-term price fluctuations as the company has made a long-term financial investment into Blackstone and Morgan Stanley. WHich, given the prices, is just as well.

He added, ‘We can make a gain not only from the stock price. And we can also achieve investment gains from dividends.’ The fund has started to pay interest on bonds issued by the Ministry of Finance to fund its start-up.
Source: CNN Money

Lou Jiwei, Chairman of CIC said in London that China’s sovereign assets fund, China Investment Corporation (CIC) will serve as a stabilizing factor in the global financial market with its long-term investment strategy.

Lou Jiwei, who controls a US$200 billion investment fund, said, ‘We will adopt a long-term and prudent investment principle and a safe, professional portfolio strategy that adapts to market changes, which will put emphasis on a rational match of returns and risks.

‘Judging from our investment strategy and scale, we are unlikely to present a major impact on the international market.’

That is because one-third of CIC’s US$200 billion was used to purchase Central Huijin Investment Company while another third is being put aside to be invested in state-owned banks that are to be restructured into joint-stock companies. The remainder of the capital, some US$70 billion, is available for overseas investing, Lou told the London City’s financial leaders at a banquet given in his honor. The new sign of the City of London is shown in our illustration.

He said, ‘Even the 70 billion dollars must be invested by batches, in a wide range of portfolios, over which we do not seek control.’

He said CIC is more than happy to learn the managerial expertise and best practices of financial institutions, including those in the City of London, particularly the proven experiences concerning sovereign wealth funds.

Lou Jiwei said, ‘As a manager of sovereign wealth funds, I do not expect the over-use of national security as a pretext for investment protectionism and financial protectionism to damage the stability of international economy and finance.’

Lou is leading a six-member delegation on his three-country tour. After his three-day Britain visit, he will go to France and Singapore.
Source: China View

BusinessWeek has a serious and well-balanced article by Ken DeWoskin, senior advisor to PriceWaterhouseCoopers, professor emeritus at the University of Michigan and a co-founder of the Wharton International Forum in Shanghai, on China’s investments overseas.

Setting the scene the article reminds us that in 2007, China will surpass the US as the world’s second-largest exporter, and in 2008, it will surpass Germany, the largest. By the end of September, China had exported nearly US$900 billion in goods.

All of this has happened in about 30 years: then China was entirely disengaged from the global trading system. Now it is all on an upward climb.

Between October 2006 and June 2007, China’s reserves soared US$330 billion to reach US$1.33 trillion, and now stand at nearly US$1.5 trillion.
As export growth rate reached 28%, the current account surplus expanded to 9% of GDP.
The pressure in China is growing, both to drain liquidity from the domestic economy and find more profitable uses for its forex reserves.

The China Investment Corporation (CIC), was formally launched October 1 with US$200 billion in assets.

It will follow in the footsteps of Singapore’s two sovereign funds and also learn from the experiences of other domestic entities like China Development Bank (CDB) and the CITIC conglomerate.
For the full article click on Source.
Source: BusinessWeek

According to its chairman, Lou Jiwei, shown here, China Investment Corp. (CIC), China’s sovereignty wealth fund, is looking to be a stabilizing force in the international equity markets.

CIC, which manages 200 billion U.S. dollars of China’s massive foreign exchange reserves, seeks to stabilize global equity markets through investment.

Lou Jiwei told a forum it would boost corporate transparency when it does not affect company interests.
The majority of its investments would be in publicly-traded securities with a smaller part for alternative investments. The company would also seek direct investments.

Lou said the management was under huge pressure as the fund’s capital was raised by the Ministry of Finance through the issuance of a special treasury bond. CIC has to bear the 5% cost of the capital.

He said this means the fund has to make a profit of RMB300 million a day to make ends meet.
Source: China View

A long article in The Times that you should read. Click on Source at the end of the article.

Funds backed by foreign states could have $12,000 billion to invest by 2012. The financial muscle of these vehicles, are now causing alarm in the West. To put a block on it would suggest the West does not have an open economy.

These sovereign funds have been around since 1953. But it is only recently the power of sovereign funds has mushroomed. Now China has been boosted by income from huge trade surpluses.

Stephen Jen, chief currency economist at Morgan Stanley, estimates that even if China tries to rein in its current-account surplus, the country’s sovereign fund could grow by $200 billion a year, becoming the world’s largest within a few years.

Gerard Lyons, chief economist at Standard Chartered, said: ‘There is a serious likelihood of western governments and sovereign wealth funds clashing over what they can buy and where. A protectionist backlash against strategic investments is real and threatens global trade.’

China is putting $1 billion into Bear Stearns. This has made many Americans uneasy.
Industrial and Commercial Bank of China is putting $5.5 billion into Standard Bank, Africa’s biggest lender.
The China Development Bank bought a 3.1% stake in Barclays in July.
China Construction Bank in August agreed to buy Bank of America’s Hong Kong and Macao operations for $1.2 billion.
China is promising up to $8.5 billion of investment in the Democratic Republic of Congo in exchange for a slice of its mineral assets.
Last year, China signed a $1.6 billion deal with Angola to develop an oilfield in the African state. Read the full article. Well worth the time.

Source: Times Online

The People’s Bank of China has announced that China’s foreign exchange reserve reached $1.43 trillion dollars by the end of September. That is up 45.1% year-on-year.

In September alone, the forex reserve rose by $25 billion.

China’s trade surplus for the first nine months of the year reached $185.7 billion dollars, exceeding the total trade surplus of $177.47 billion dollars for 2006.

Which results in excess liquidity in China, as the central bank has to spend quantities of basic money to purchase foreign exchange, thus aggravating the problem of surplus fluidity.

In a move to make better use of the country’s huge forex reserve, China announced the establishment of China Investment Corporate, the country’s state forex investment company. The state-owned investment company will invest in overseas financial markets.
Source: China View