Chinese sovereign wealth fund mismanaged investments, audit finds

China Investment Corp failed to conduct adequate due diligence on overseas investments which led to losses, the mainland's auditor finds

PUBLISHED : Thursday, 19 June, 2014, 12:55am
UPDATED : Thursday, 19 June, 2014, 12:55am

The mainland's US$575 billion sovereign wealth fund mismanaged some of its overseas investments between 2008 and last year that led to losses, the National Audit Office said yesterday without specifying the size of the loss.

It said some employees of China Investment Corp (CIC) did not conduct adequate due diligence before investing in 12 overseas projects in the past six years. And they subsequently also failed to track the performance of those investments, it said.

The fund also breached regular procedures when it hired external managers for a few of its foreign projects, the report added.

In addition, several CIC units on the mainland, such as Central Huijin, China Jianyin Investment, China Investment Development and China Zhongtou Trust, were also found to have irregularities in their businesses.

These included breaking away from their core businesses and venturing into the real estate sector, and funding illegal property projects.

Created in 2007, CIC is tasked with helping the mainland invest its US$3.95 trillion-and-growing foreign exchange reserves. But because of the huge size of the mainland's national savings, the central government has formed other domestic funds that rival CIC in the hope of further improving investment returns.

CIC reported an annual return of 10.6 per cent in 2012, reversing from 2011's loss of 4.3 per cent. Its cumulative annualised return since inception is 5 per cent.

The audit office also released separate reports about Bank of China, the mainland's fourth-largest bank, and Agricultural Development Bank of China, a state-owned bank that supports the government's farm policies.

It found that six Bank of China branches had disbursed 6.4 billion yuan (HK$7.9 billion) of loans that violated mainland lending policy in the past 10 years. It did not say if it conducted similar checks at other bank outlets.

In addition, three other Bank of China branches were discovered to have made 3.2 billion yuan worth of loans between 2009 and 2012 to businesses that were not involved in genuine trade.

Mainland policymakers try to control how much banks lend a year by telling banks when and how much to lend, and whom to lend to.

Similarly for Agricultural Development Bank of China, the auditor found that the bank made a total of 6.8 billion yuan worth of "irregular" loans by relaxing its lending rules in the six years to 2012.

The report said the Agricultural Development Bank had also disposed of 1.5 billion yuan worth of non-performing loans in the past five years through "irregular" means. No details were given.

Bank of China and Agricultural Development Bank issued statements on their websites in response to the audit result, saying they had rectified the wrongdoings and measures had been taken to prevent risks from irregular loans.

CIC did not immediately respond to a request for comment.