China's Sovereign Wealth Fund After Another 200 Billion US Dollars

By Ouyang Xiaohong
Published: 2009-11-25

Market, page 22, issue 445, November 23, 2009
Translated by Tang Xiangyang
Original Article:

Correction: The figures in the last paragraph have been amended. Due to an error in translation, we originally claimed that CIC invested 48 billion US dollars abroad last year, the correct figure is 4.8 billion US dollars.  

It's rumored that China's 300 billion-sovereign wealth fund, China Investment Corporation (CIC), will apply to the State Council for the injection of another 200 billion US Dollars from China's foreign exchange reserves.

The fund set aside 110 billion US dollars for overseas investment this year, but with the pace of investment beginning to increase, only 50 billion US dollars currently remain on the books.

As an example of the pace of investment, CIC acquisition of a 20% stake in GCL-Poly Energy Holdings Ltd, a poly-silicon supplier and energy company, on November 19, was the fifth investment in an energy company that CIC has made within the past month.

Another 200 Billion?

"Aside from concerns that the Chinese currency will soon appreciate, the reason why CIC has quickened the pace of its investments overseas is due to their consideration of approaching the central government for more funding from the country's foreign exchange reserves." a person familiar with the situation revealed to the EO.

Another source said that they will ask for no less than 200 billion US dollars. Though, the exact number is likely to be decided by the annual performance of the fund.

An official with the Ministry of Finance explained that if CIC wanted to obtain more funds, they should first submit an application to the State Council. If approved, they would then need to approach the Ministry of Finance and work out the details of how to inject capital into the corporation.

However, this official had not heard any news of such an application being lodged.

"Only if we do a good job will the government consider allowing us access to more foreign reserve," an employee within CIC told EO.

The problem is, all the projects CIC has invested in are medium and long-term projects, and it won't be possible to properly evaluate the success of their investment within the next five years.

At the current rate, the remaining 50 billion US dollars of funds will soon be depleted and so CIC is forced to start the process of applying for extra capital now.

But it's unlikely that the corporation will be required to wait five years before more capital is injected.

A bigger challenge is that of the myriad problems created by the country's ever-increasing foreign currency reserves. "With such huge foreign exchange reserves, there is a lot of pressure to maintain and increase their value," an official said.

In fact, the Chinese government is attempting to reduce the amount of US Treasury Notes in its foreign exchange reserves.

In addition to CIC's effort to increase overseas investment, the State Administration of Foreign Exchange (SAFE) is also speeding up the pace at which it diversifies the country's foreign reserve assets.

Recently, it began recruiting staff from abroad with experience in investing in overseas assets. The new staff will work in both SAFE's Beijing headquarters and offices abroad.

According to CIC's chairman, Lou Jiwei, the corporation has continued to focus its attention on bulk commodities and real estate, but the pace of investment has picked up.

In recent weeks, the corporation has invested close to 30 billion Renminbi, a figure that nudges the 4.8 billion US dollars (32 billion Yuan) in overseas investments that were undertaken throughout the whole of 2008.