CIC set to take baby steps as investment giant

PUBLISHED : Monday, 01 October, 2007, 12:00am
UPDATED : Monday, 01 October, 2007, 12:00am

The newly established giant China Investment Corp (CIC) will have to brave rough weather due to uncertainties on the international financial markets and lack of expertise.

Though the mainland media beat the drum over the weekend, using the phrase 'strategically important' to characterise the official setting up of CIC on Saturday, a cluster of organisations including Xinhua, 21st Century Business Herald and China Business newspaper, however, published articles expressing concerns on the outlook for the financial juggernaut.

CIC, mandated to invest part of the country's foreign reserves, was set to play a low-key role worldwide despite its massive US$200 billion capital base because the mainland had not been fully prepared for proactive investment and acquisitions worldwide, market watchers said.

State media concluded that CIC had yet to map out its investment strategies so as to make the most of the managed assets, almost 17 per cent of the mainland's foreign reserves.

'China is not seeking to strike it rich quickly since we have a lot to learn about foreign markets,' said Professor Zhou Dunren, an economist at Fudan University. 'The new agency will be very cautious initially.'

As the global financial community strives to lift the veil of secrecy on the world's largest fund, analysts say CIC probably will take a few months to fine-tune its investment strategy.

Observers predicted it would have to step aside from deliberations as western countries, concerned by fears of energy and financial asset security, are likely to put up stumbling blocks for its potentially controversial acquisition deals.

It is estimated that the fund will reserve part of its capital to seek shares in strategically important sectors such as natural resources and energy. The country has reiterated that CIC will seek minority stakes to avoid political conflicts.

'Nevertheless, with the amount of capital involved, and amid growing concerns about the role of state investment funds in the world's capital markets, CIC's every move will be followed closely,' said Jing Ulrich, JP Morgan's chairman for China equities.

The market has been rife with speculation that CIC will chase high returns in overseas markets as the mainland hopes to shift its focus from low-yield United States treasuries to risky equities.

Lou Jiwei, a former vice-finance minister who was appointed head of the agency, was quoted by Xinhua as saying the fund 'will be enshrined by the principle of stable operation and seek long-term returns, fully counting in the risks'.

The agency is also swirled by suspicions on its transparency and investment expertise. In the past few months, observers have cast doubts on CIC because the fund suffered multimillion-dollar paper losses in its first investment in Blackstone, falling prey to the private equity group's decline on the US stock market.

In May, CIC subscribed to Blackstone's initial public offering shares worth US$3 billion before the agency's official launch.

The agency badly needs professional managers since all board members are government officials who may lack the skills to oversee day-to-day investment operations, China Business said in a report yesterday.