China's sovereign wealth fund opened for business on Saturday, promising not to take excessive risks and to be sensitive to international concerns as it goes about investing $200 billion of the nation's vast reserves.
The agency, called China Investment Corp Ltd, has the potential to grow into one of the world's biggest funds but faces the short-term challenge of recruiting experienced managers and earning enough on its overseas assets to offset the steady appreciation of its home currency, the yuan.
"The strategy of CIC will be based on active, sound management to maximise returns for our shareholders within an acceptable bound of risk," Lou Jiwei, a former vice finance minister who is chairman of the fund, told a ceremony.
CIC is being launched at a time of growing unease among western politicians who fear sovereign wealth funds will build up stakes in leading companies that will give them influence in politically sensitive sectors.
Alert to the concerns, Lou said CIC would respect international practices and norms as well as the laws and regulations in countries where it invests. CIC would set out to groom a good image of the company, Lou said: "We will increase our firm's transparency on condition of not harming our commercial interests."
Overseas, CIC would have a diversified portfolio of mainly financial products, while at home it would inject funds into financial institutions, Lou said. The only investment that CIC has acknowledged is a $3 billion stake in US private equity house Blackstone Group
A British broker, after combing through shareholder registers, said several weeks ago that CIC had also bought a stake in BG Group, a British gas producer. "The establishment of CIC is an important move by China to participate in global financial market competition and is also a bold attempt to venture abroad," said Zhang Ping, deputy secretary-general of the State Council, China's cabinet.
Although the CIC will have initial capital of $200 billion, it will have far less to invest in global markets to start with. One-third of its capital will pay for Central Huijin, an investment vehicle that the central bank used to pump foreign exchange into several big state banks that have since been successfully listed in Hong Kong and Shanghai.
Media reports have also said the CIC will be used to recapitulates Agricultural Bank of China and China Development Bank. It might even buy shares in big state-owned enterprises.
Zhang said a lack of experienced fund managers and China's fast-expanding reserves, which now top $1.4 trillion, posed serious challenges. CIC's board has 11 members, all current or former officials from various arms of the government. There are three executive directors, including Lou.
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