CIC considers new-capital mechanism revamp

Updated: 2011-05-13 09:17

By Wang Xiaotian (China Daily)

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BEIJING - China Investment Corp (CIC), the country's $300 billion sovereign wealth fund (SWF), is considering setting up a mechanism for continued new capital, as the country accumulates foreign exchange reserves, said a senior executive on Thursday.

Jin Liqun, chairman of CIC's supervisory board, denied that the company has already received a new round of capital injection from the government, as some media had reported.

At the third meeting of the International Forum of Sovereign Wealth Funds (IFSWF) held in Beijing, Jin said the precise amount and the method of injection are still under discussion.

"We will probably make some changes to the contract," said Jin, refusing to say when the new contract will be settled.

He added that the performance of the SWF, a long-term investor, should not be judged by its short-term rate of return.

CIC will soon receive $100 to $200 billion in new funds, as the government seeks to reduce its exposure to US government debt, according to a report in the Financial Times on April 25.

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The company has already fully allocated the $110 billion it had available for offshore investments, said the newspaper.

Wang Jianxi, CIC's executive vice-president and chief risk officer, said in January that the fund has exhausted its operating capital and has applied for a capital injection.

The company's board of directors intends to raise more funds and accelerate the pace of expansion in overseas investment, especially in developing markets, said Lou Jiwei, CIC's chairman.

In 2010, the rate of return from the fund's investments was almost the same as the 11.7 percent figure posted in 2009, and higher than the average rate for China's other large investment companies, said Lou.

Jin said the fund has accelerated the frequency of its investments since the second quarter of 2009, seeing opportunities in some areas despite the risks inherent in a fragile economic recovery.

CIC was founded in 2007 with a mandate to earn a higher return for the government. Zhou Xiaochuan, the governor of the central bank, said in April that China's $3 trillion foreign exchange reserves have exceeded a "reasonable" level and management and diversification of the portfolio need to be improved.

The central bank is also planning new investment funds to diversify the foreign reserves holdings, by investing in the energy and precious metal markets, the New Century Weekly reported on April 25, citing unnamed sources close to the PBOC.

According to the IFSWF, several fragilities remain in the financial markets, although overall the global economic recovery has begun, which provoked uncertainties for SWFs worldwide.

"As investors we are closely monitoring developments both in advanced and emerging markets, and are studying the implications for our investment mandates and portfolio composition," the IFSWF said in a news release on Thursday.

At the third meeting of IFSWF, the SWFs discussed how to tail risks in portfolio risk management and construct portfolios for various macroeconomic scenarios. The talks also centered on whether and how SWFs, as long-term investors, could play a countercyclical role in providing global financial and economic stability.

David Murray, chair of the forum and chairman of Australia's Future Fund, urged recipient countries to maintain openness toward foreign investment, and guard against discrimination against SWFs compared with other institutional investors.

Hu Yuanyuan and Chen Jia contributed to this story.


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