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Beijing hands CIC a further $50bn

©Reuters
China Investment Corp, the Chinese sovereign wealth fund, has received a further $50bn in capital from the government.

The move was disclosed late last week in Beijing by CIC officials attending a forum for sovereign wealth funds and pension funds that meets twice a year.

Although less than the $100bn-$200bn CIC had sought, the nature of the increase suggests Beijing will release the money it decides to allocate to CIC slowly over time to better monitor performance.

CIC has more than $400bn under management, according to its 2010 annual report, which is the most recent. In 2010, CIC earned 11.7 per cent on the money invested abroad.

In 2007, CIC was set up with the dual mandate of putting its funds to work abroad and earning higher returns than money sitting passively in US Treasury securities.

At that time, the current account surplus was more than 10 per cent of gross domestic product. It has since fallen to 2.8 per cent – a decline that makes the task of recycling dollars earned abroad less urgent. Also, as more of China’s trade is denominated in renminbi, there is less need to hold dollar reserves.

The increase in its capital for investment comes at a time when both CIC’s structure and its mandate are the subject of internal and external debate.

CIC, stung by setbacks in some of its investments abroad, is looking to invest more in China, in spite of the fact that it was established explicitly to channel money out of the mainland.

Many of its recent initiatives involve putting money in funds that have flexible mandates and can invest in China or in other markets, as is the case with the fund it established with the Russian government last year.

It also has units that have indirectly made real estate investments in China and it has asked to invest alongside international funds when they have made investments on the mainland, according to people familiar with the matter.

Meanwhile, CIC’s structure is complicated by the fact that Central Huijin which holds stakes in the large listed Chinese banks, also sits under the CIC umbrella. That means CIC is also putting money into the Chinese banks.

Recently, for example, when Bank of Communications launched a rights issue, CIC was a large buyer – alongside HSBC which owns a big stake in the bank – people familiar with the matter say.


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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