Temasek Holdings

China fund allays west's fears with 'stabiliser' role

PUBLISHED : Wednesday, 17 October, 2007, 12:00am
UPDATED : Wednesday, 17 October, 2007, 12:00am

Chairman says chief goal is to achieve maximum returns

China Investment Corp, the nation's new US$200 billion sovereign wealth fund, would act as a 'stabilising force' in the global economy rather than a rattler of financial markets, the company's chairman said.

Seeking to calm growing unease from the US and Europe about the growing financial might of similar funds in Asia and the Middle East, Lou Jiwei said the CIC's investment strategy would be commercially driven and not politically motivated.

Group of Seven finance ministers and central bankers will meet in Washington on Friday to consider limiting the influence of state-owned investors such as the CIC and Singapore's Temasek Holdings.

So-called sovereign wealth funds collectively manage US$1.9 trillion, a formidable war chest that can potentially take controlling stakes in some of the world's biggest companies.

Mr Lou, in his first public speech since the company's inauguration on September 29, yesterday launched a spirited defence of the organisation against critics at home and abroad.

'There have been many critical views of sovereign wealth funds but overall they strengthen global financial stability,' Mr Lou told a meeting of financial chiefs at the 17th national congress in Beijing which was open to overseas media.

The CIC invested US$3 billion in US private equity firm Blackstone Group in May, fuelling fears it was gearing up to be an aggressive buyer of assets around the world.

Mr Lou said his study of other international funds had found no wrongdoing on their part.

'There are more than 20 sovereign wealth funds and they have not created any trouble or crises,' he said. 'Rather, they have played a role as a stabilising force because their investments are relatively conservative and typically not seeking control.'

Mr Lou, who is also the State Council's deputy secretary general, said the CIC's chief goal was to achieve maximum returns for the country, adding its global investments were primarily in money markets and did not add risks to the global economy.

He said hedge funds and increasingly complex derivative markets were of far greater concern than sovereign wealth funds.

'The real cause of international financial market instability is macro-focused hedge funds,' he said, adding the subprime debt crisis had been driven by poor risk control amid continuous development of multiple layers of derivatives.

Beijing could earmark more of its US$1.43 trillion in foreign exchange reserves for the CIC but only if the fund manages its investments well. 'If I'm making losses, how can I ask the government for more money?' he said.

Mr Lou said the company badly needed professional managers and asked financial and banking chiefs to recommend talent.

He said the firm would be structured like other global investment funds and had attached importance to sound corporate governance. It has set up a board of supervisors operating alongside its main board.

The investment agency will come under the direct supervision of the State Council.

Mr Lou will act as director while Gao Xiqing, a former deputy chairman at the National Council for Social Security Fund, will be the general manager.

Mr Lou said the state investment agency had paid US$67 billion for Central Huijin, a key investment arm of the nation's central bank.

Fund focus

The fund's objective is to maximise shareholders' benefit. It will be run purely on commercial principles, and political considerations will have no bearing on the investment choices

Sovereign wealth funds are a stabilising force in the international market

We have not made any investments in Hong Kong, but there are rumours that we are buying Hong Kong stocks

The pressure on us is very great and so is the responsibility