Bank of China

CIC juggles challenge of multiple agendas

PUBLISHED : Thursday, 03 April, 2008, 12:00am
UPDATED : Thursday, 03 April, 2008, 12:00am

Wealth fund finds learning curve a steep one

China's sovereign wealth fund, which manages US$200 billion in foreign reserves, faces the difficult challenge of fending off international criticism of its intentions, while keeping its political masters happy and compensating for a lack of experience, according to a senior official.

'Some departments are still in the process of getting set up but we have accomplished a lot in six months,' said China Investment Corp executive vice-president and chief risk officer Jesse Wang. 'We see ourselves as similar to a large pension fund where we run a large amount of money for a long period.'

The fund, which officially opened its doors in September last year, was seeking a return on its investment of 4 per cent to 8 per cent, he added.

While the fund may see itself as a standard investor, the rise of sovereign wealth vehicles has stoked fears in foreign capitals and corporate boardrooms of politically motivated investment choices.

'There have been lots of hypothetical threats [allegedly posed by sovereign wealth funds],' Mr Wang said. But 'you can't find strong evidence and they can't be logically supported', he said.

Beijing has also saddled the fund with a political agenda of rescuing China's state-owned banking industry. A fund controlled by the People's Bank of China, Central Huijin Investment, was folded into CIC, which inherited its investments in banks.

CIC has pumped US$20 billion into China Development Bank, a policy bank that lends to infrastructure projects, and US$2.6 billion into China Everbright Bank, the mainland's eighth-largest lender. The fund will also be required to prop up Agricultural Bank of China, Mr Wang said. That, along with Huijin's legacy investments, will leave about US$70 billion to US$80 billion for overseas investment, he said.

CIC also inherited a large shareholding through Huijin in China International Corp, an investment bank partially owned by Morgan Stanley.

The fund's hands are also tied by Beijing's unwillingness to pay staff in line with global standards making it difficult to attract people, Mr Wang said. Workers in China's state-owned sector, like most government workers anywhere, make much less than they could in the private sector.

'Top management and our other colleagues lack experience but we have lots of money [to invest] - that's the trouble,' Mr Wang said. 'The learning curve is steep.'

Large investments by the fund have performed badly and attracted strong criticism at home.

Investments in United States private equity firm Blackstone Group, Morgan Stanley and China Railways Group Construction have all dropped from the price it paid. The only bright spot was the US$100 million spent on the Visa offering whose shares are trading at about US$20 above the listing price.