CIC No Longer to Pay Interest to the State

By Ouyang Xiaohong, Liu Peng
Published: 2009-08-26

China Investment Corporation, the country's $200 billion US dollars sovereign wealth fund, will change the way it reimburses the state for its original investment in the fund, the Economic Observer learned.

The CIC has reached an agreement with the Ministry of Finance (MOF) to treat the $200 billion US dollars used to originally finance the company as assets rather than a debt, a source from the CIC told the EO.

This means that CIC will no longer be required to make regular interest payments to the state, which will, to some extent, ease the pressure on CIC in terms of payments.

In late 2007, in order to fund CIC, the MOF bought foreign exchange from the central bank paid for by issuing special treasury bonds worth 1.55 trillion yuan ($226.9 billion) at an annual rate of 4.3 percent. As a result, CIC has been required to pay about 66.65 billion yuan ($9.76 billion) in interest to the state each year.

However, this is about to change and CIC will, like other central state-owned enterprises, likely pay dividends at regular intervals to the state.

Whether to let a state-owned financial enterprise pay dividends was still not settled. An official from the MOF said.

"As a semi-government body, the CIC's board of directors should decide how to pay dividends to the state and then submit its decision to the State Council," the above MOF official added.

The EO learned that from August, the country's State-owned Asset Supervision and Administration Commission (SASAC) began to collect the dividend payments for this year from the 136 non-financial central SOEs under its control.

SOEs involved in the tobacco, oil, chemical and power industries should pay 10 percent of their capital returns to the state while those in steel, transportation and electronics businesses pay five percent.

According to its first annual financial report, the CIC registered a 6.8 percent return on its capital and its net profits reached 23.13 billion US dollar in 2008.

Based on calculations, CIC may pay dividends worth 68.3 billion yuan ($10 billion) to the state.

Wen Zongyu, a researcher in Research Institute for Fiscal Science under the MOF, estimated that due to negative affect of natural disaster and the global financial crisis, the total dividends paid by central SOEs, (excluding CIC) to the state, wouldn't exceed 40 billion yuan ($5.86 billion).

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Economic Observer: Article (Chinese)