Chinese Government Launches Company to Invest $200 Billion From Its Vast Foreign Reserves
( AP ) -- The Chinese government launched a company Saturday to invest $200 billion from its vast foreign reserves, creating one of the world's richest investment funds at a time of rising scrutiny of such state-run entities
Financial analysts are watching to see where the new company invests and the impact on financial markets, especially demand for U.S. Treasury securities, in which Beijing holds a big share of its reserves.
Beijing announced plans for the fund in March in hopes of earning higher returns on its $1.3 trillion in foreign reserves, which are the world's largest.
The China Investment Corp. will start out with $200 billion in capital, the Xinhua News Agency said. Its chairman is Lou Jiwei, a deputy secretary-general of China's Cabinet and a former finance minister, Xinhua said. The general manager is Gao Xiqing, vice chairman of the agency that manages China's state pension and social welfare fund.
The fund is to operate independently and keep investment decisions separated from government policy, Xinhua said. The agency has yet to disclose its investment goals.
An official involved in creating the fund told The Associated Press in May it was likely to try to avoid causing political strains by buying minority stakes in companies abroad rather than pursuing outright takeovers.
Chinese companies have been uneasy about foreign acquisitions since an uproar in 2005 over state-owned oil company CNOOC Ltd.'s attempt to acquire U.S. oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.
Some officials and economists want the new fund to finance foreign expansion by Chinese companies or buy oil and other resources needed by the country's booming economy.
The rapid growth of such sovereign wealth funds run by Asian and Middle Eastern governments has raised questions about their intentions and impact on financial markets.
The European Union might restrict investments by government funds unless they disclose more about what they invest in and why, the top EU economic official said this week.
"If they don't agree to these criteria, we can find good reasons to react in some cases," EU Economy Commissioner Joaquin Almunia told London's Financial Times in an interview.
China's investments have drawn special attention because of the country's large and growing economic and military might.
The new fund would dwarf foreign investment activity by Chinese companies, which spent $21 billion abroad last year, according to the government.
On Friday, a group that includes China's biggest maker of network equipment, Huawei Technologies Co., announced it would pay $2.2 billion to buy U.S. network gear supplier 3Com Corp. in a deal that could draw similar scrutiny. Huawei was founded by a former Chinese army officer and its early sales were to the military, but the company says most of its business now is with civilians.
Finance Minister Jin Renqing said in March that China's investment agency would be modeled in part on Singapore's government-owned Temasek Holdings, which invests in banks, real estate and other industries in China, India and elsewhere.
China currently holds its reserves in U.S. Treasury securities and other safe but low-yielding instruments.
A key question about its new strategy has been the possible impact on the Treasury market. Chinese purchases have helped to finance the U.S. budget deficit, and Beijing has given no indication of how much money might be diverted to other assets. But lower Chinese demand could force Washington pay higher interest to attract buyers.
The new Chinese agency made its first deal even before it was formally launched, agreeing in May to pay $3 billion for just under 10 percent of American investment firm Blackstone Group LP.
That investment has performed poorly, with Blackstone shares falling since an initial public offering in June.