China Investment Corporation

China Investment Corporation

Type	Sovereign wealth fund
Industry	Investment service
Founded	Beijing, China (2007)
Headquarters	Beijing, China
Key people	Lou Jiwei (Chairman and CEO) Gao Xiqing (Vice Chairman, President and CIO)
Operating income	US$ 54.802 Billion (2010)[1]
Net income	US$ 51.560 Billion (2010)[1]
Total assets	US$ 409.579 Billion (2010)[1]
Total equity	US$ 409.579 Billion (2010)[1]
Employees	497 (2011)[1]
Subsidiaries	Central Huijin Investment Ltd. (Central Huijin)
Website	www.china-inv.cn

China Investment Corporation (CIC) is a sovereign wealth fund responsible for managing part of the People's Republic of China's foreign exchange reserves. CIC was established in 2007 with approximately US$200 billion of assets under management, making it one of the largest sovereign wealth funds.^[2][3] Since then, CIC's assets have grown to $410 billion at the end of 2010.

History

The People's Republic of China has US$2.5 trillion in currency reserves. The China Investment Corporation was established with the intent of utilizing these reserves for the benefit of the state, modeled according to Temasek Holdings of Singapore. The state-owned Central Huijin Investment Corporation was merged into the new company as a wholly owned subsidiary company.^[4]

The Corporation aims to invest in around fifty large-sized enterprises across the world. Special treasury bonds were issued to create the capital that the CIC needed. 1,550.35 billion yuan ($207.91 billion) was issued in this bond sale. The bond process was completed in December 2007.^[5] According to Lou Jiwei, the CIC needs to make a profit of 300 million Yuan every day just to pay the interest on the bonds and operation costs. The low cost of capital of CIC leads to contentions that its investments are effectively subsidized by the Chinese government therefore creating an unfair advantage for CIC versus others seeking to compete for the same acquisition targets. The CIC paid its first interest on the bonds in February 2008 where it paid 12.9 billion yuan.^[6]

In 2010, CIC established a new subsidiary, CIC International (Hong Kong) Co in Hong Kong and appointed Lawrence Lau as its Chairman.^[7]

In 2011, CIC established its first foreign office in Toronto, choosing it over financial centres such as New York or London as its first office. Felix Chee will be the chief representative officer^[8]

Governance

The management and board of the China Investment Corporation ultimately reports to the State Council of the People's Republic of China. The China Investment Corporation is seen as being "firmly entrenched" in the political establishment as the composition of its Board of Directors implies "considerable influence on the part of China’s Ministry of Finance."^[9]

Board of Directors

• Chairman & CEO - Lou Jiwei
• Vice Chairman, President & CIO - Gao Xiqing
• Executive Director, Executive Vice President & COO - Zhang Hongli
• Non-Executive Director - Zhang Xiaoqiang
• Non-Executive Director - Li Yong
• Non-Executive Director - Fu Ziying
• Non-Executive Director - Liu Shiyu
• Non-Executive Director - Hu Xiaolian
• Independent Director - Liu Zhongli
• Independent Director - Wang Chunzheng
• Employee Director - Li Xin

Board of Supervisors

• Chairman of Board of Supervisors - Jin Liqun
• Supervisor - Linghu An
• Supervisor - Wang Huaqing
• Supervisor - Fan Fuchun
• Employee Supervisor - Cui Guangqing

Executive Committee

• Chairman & CEO - Lou Jiwei
• Vice Chairman, President & CIO - Gao Xiqing
• Chairman of Board of Supervisors - Jin Liqun
• Executive Director, Executive Vice President & COO - Zhang Hongli
• Executive Vice President - Peng Chun
• Executive Vice President & Deputy COO - Fan Yifei
• Executive Vice President & Deputy CIO - Xie Ping
• Executive Vice President & CRO - Wang Jianxi
• Member of the Executive Committee - Liang Xiang

International Advisory Council

Asia

• Zeng Peiyan (China)
• Frederick Ma (Hong Kong, China)
• Taizo Nishimuro (Japan)
• Yingyi Qian (China)
• Andrew Sheng (Malaysia)
• Joseph Yam (Hong Kong, China)

Americas

• David L. Emerson (Canada)
• Merit E. Janow (United States of America)
• John J. Mack (United States of America)
• John L. Thornton (United States of America)
• James D. Wolfensohn (United States of America)

Europe

• Knut N. Kjaer (Norway)
• Jean Lemierre (France)
• Lord Nicholas H. Stern (United Kingdom)

Profile

Gao Xiqing is now vice chairman of the National Council for the Social Security Fund. Zhang Hongli and Li Yong are vice ministers of finance. Zhang Xiaoqiang and Wang Chunzheng are vice ministers of the National Development and Reform Commission (NDRC), the nation's top economic planner. Fu Ziying is assistant to the Minister of Commerce. Liu Shiyu is a central bank vice governor, Hu Xiaolian head of the State Administration of Foreign Exchange and Liu Zhongli was former finance minister.

Yang Qingwei is currently department head of fixed assets investment with the NDRC. Xie Ping is now the general manager of the Central Huijin Investment Corporation and Wang Jianxi a vice board chairman of the Central Huijin.

Hu Huaibang, Commissioner of Discipline Inspection with the China Banking Regulatory Commission, took the post as chief supervisor.

Lou Jiwei worked his way up, starting in the People's Liberation Army Navy and becoming the deputy minister of finance.

Xie Ping, "The Iron Fist" reorganized much of the Chinese banking system, and now firmly controls it.

Wang Jianxi holds a doctorate in accounting and lived in the United Kingdom and the United States and adopted the American first name 'Jesse'.

Previously, the Lou, Xie & Wang used $60 billion in currency reserves to clear all the bad loans from the books of the three largest state banks, allowing for stock market flotations in Hong Kong. These banks have rejoined the ranks of the world's leading financial institutions.

Investment strategies

  China has invested two-thirds^{[citation needed]} of its reserves in US dollars, mostly US treasury bonds and agency bonds. The devaluation of the US$ on world currency markets has provided poor returns, prompting the Chinese to create the CIC to manage China's investment in equities.

Credit Suisse predicted CIC would only take a 5-10 per cent stake in each company, remaining a passive investor to avoid political hassles in overseas markets.^[10] CIC bought a $3 billion stake in Blackstone, one of the largest US private equity firms. CIC has refrained from influencing Blackstone's investment strategy. The company will mainly pursue combined investments in overseas financial markets.

CIC is thought to engage in building influence for the government by buying up significant stakes in companies that have influence in western governments including airline companies as also target firms that have heavily invested in China. The investments would help the government to influence the policies of multinational companies and to protect China's interests in international spheres.^{[verification needed]}

Market watchdogs want to know what would happen if China, Russia and Arab countries were to systematically acquire significant holdings in sensitive industries such as telecommunications, energy and defense.

The new fund has been placed under the authority of Chinese Premier Wen Jiabao.

Lou has been assigned the rank of a minister. During daily operations, he will answer to a host of other agencies, including the powerful National Development and Reform Commission, a successor to the former influential State Planning Commission. Lou said CIC will operate on the principle of "commercial operation", and will abide by local laws of countries where it invests.

The state media had earlier speculated that the company will invest $67bn to buy the assets of Central Huijin, the investment arm of the central bank which holds shares in most state-run banks. It was later reported that Huijin was acquired by CIC from the State Administration of Foreign Exchange for $200 billion.^[11]

China's leadership has debated the right strategy for the government investment fund. Vice Premier Zeng Peiyan has suggested that China should invest in natural resources to increase its strategic reserves. Other high-ranking party officials would rather see the country acquire shares in high-tech companies to help China more rapidly close the gap with leading industrialized nations.

Three years ago, dealers working for China Aviation Oil in Singapore, China's sole supplier of aviation fuel, suffered losses of $500 million from miscalculations and rising oil prices.

CIC bought a US $3 billion stake of Blackstone Group in June^[12] and a 9.9 per cent stake of Morgan Stanley worth US$ 5 billion on December 19, 2007.^[4][13][14]

The Chinese Internet community regularly vents its anger over government losses of the people's money, and there is widespread skepticism among Chinese party leaders and the public over the extent to which the country should get involved in global equities investments^{[verification needed]}. Western investment banks Goldman Sachs and Morgan Stanley will provide expert knowledge to China's state-sponsored venture capitalists.^{[verification needed]}

On March 2, 2009, Chinese media reported that the CIC was shifting its investment strategy to focus more on real estate, resources, and other areas more tied to the "real economy".^[15]

Holdings

This list is incomplete; you can help by expanding it.

• Teck Resources, July 3, 2009, $3.5 Billion, 17.2 per cent stake^[16]
• Blackstone Group, May 22, 2007, US$3 billion, 9.4 per cent stake.^{[4][12][14][17]}
• Morgan Stanley, December 19, 2007, US$5 billion, 9.9 per cent stake^[4][13][14]
• VISA, March 19, 2008, US$100 million, > 0.1 per cent stake^[18][19]
• China Railway Engineering Corporation, November 20, 2007, US$100 million^[20]
• Noble Group, September 21, 2009, US$850 Million, 12.9 per cent stake^[21]
• Nobel Oil Group, October 15, 2009, US$300 Million, 45 per cent stake^[22]
• Penn West Energy Trust, May 13, 2010, $1.2 Billion, 5 per cent stake^[22]
• GDF Suez, August 10, 2011, $3.5 Billion, x per cent stake^[22]

See also

• Sovereign wealth fund
• State Administration of Foreign Exchange
• Foreign exchange reserves of China
• People's Bank of China
• Chengdu Hi-Tech Industrial Development Zone

References

1. ^ ^{a b c d e} http://www.china-inv.cn/cicen/include/resources/CIC_2010_annualreport_en.pdf
2. ^ Davis, Bob (December 20, 2007). "Wanted: SWFs' Money Sans Politics". Wall Street Journal. http://online.wsj.com/article/SB119811611876541249.html. Retrieved December 21, 2007. 
3. ^ "China Investment Corporation unveils investment plan". United States-Chinese Embassy (PRC). November 7, 2007. http://www.china-embassy.org/eng/xw/t379014.htm. Retrieved April 11, 2008. 
4. ^ ^{a b c d} China Business: "China's trillion-dollar kitty is ready", Asia Times, October 2, 2007.
5. ^ The Creation of the China Investment Corporation. - Amadan International. - (Adobe Acrobat *.PDF document)
6. ^ Liming, Li (January 31, 2008). "Day of Reckoning for China's Sovereign Fund". Economic Observer. http://www.eeo.com.cn/ens/finance_investment/2008/01/31/92109.html. 
7. ^ "CIC launches Hong Kong subsidiary". Financial Times. October 19, 2010. http://www.ft.com/cms/s/0/90f5bb38-dba0-11df-a1df-00144feabdc0.html#axzz1CXu8eoKq. Retrieved March 8, 2011. 
8. ^ Canada (January 12, 2011). "China’s sovereign wealth fund sets up shop in Toronto". Theglobeandmail.com. http://www.theglobeandmail.com/report-on-business/chinas-sovereign-wealth-fund-sets-up-shop-in-toronto/article1867917/. Retrieved March 8, 2011. 
9. ^ A Review of Chinese-Language Literature on Sovereign Wealth Funds. - Oxford International Review. - (Adobe Acrobat *.PDF document)
10. ^ Kwok, Vivian Wai-yin. "China Investment Corp. Flashes its Yuan", Forbes, May 10, 2007. Retrieved on March 28, 2009.
11. ^ Anderlini, Jamil., China investment arm emerges from shadows, Financial Times, January 5, 2008.
12. ^ ^{a b} Carew, Rick (December 14, 2007). "China Seeks External Help for Wealth Fund". Wall Street Journal. http://online.wsj.com/article/SB119759666432928557.html. Retrieved December 21, 2007. 
13. ^ ^{a b} Carew, Rick (December 20, 2007). "Great Wall Street of China". Wall Street Journal. http://online.wsj.com/article/SB119805649734239175.html. Retrieved December 21, 2007. 
14. ^ ^{a b c} Straszheim, Donald. "China Buys Wall Street", Forbes.com, December 27, 2007.
15. ^ "China's Sovereign Wealth Fund Favors Real Economy", Economic Observer, March 2, 2009.
16. ^ http://www.teck.com/Generic.aspx?PAGE=Media+Pages%2fMedia+Detail&releaseNumber=09-23-TC&portalName=tc
17. ^ Prospectus: The Blackstone Group, Morgan Stanley & Citi lead underwriters, June 21, 2007
18. ^ "China Life, CIC bought into Visa IPO", China Economic Review, March 28, 2008
19. ^ "China wealth fund buys into Visa's IPO", Reuters, March 25, 2008
20. ^ "CIC invests in China Railway IPO". China Economic Review. http://www.chinaeconomicreview.com/dailybriefing/2007_11_21/CIC_invests_in_China_Railway_IPO.html. Retrieved March 8, 2011. 
21. ^ "CIC and Noble Enter into Investment and Cooperation Agreement". Thisisnoble.com. http://www.thisisnoble.com/index.php?option=com_content&view=article&id=903%3Acic-and-noble-enter-into-investment-and-cooperation-agreement&catid=21%3Aannouncements&Itemid=110&lang=en. Retrieved March 8, 2011. 
22. ^ ^{a b c} "China Investment Corporation". China-inv.cn. October 15, 2009. http://www.china-inv.cn/cicen/resources/resources_news12.html. Retrieved March 8, 2011. 

External links

• China Investment Corporation Website
• Central Huijin Investment Corporation Website