http://biz.yahoo.com/ap/070929/china_foreign_reserves.html?.v=1
AP
China to Invest Vast Foreign Reserves
Saturday September 29, 2:27 am ET
By Joe Mcdonald, AP Business Writer
Chinese Government Launches Company to Invest $200 Billion From Its
Vast Foreign Reserves
BEIJING (AP) -- The Chinese government launched a company Saturday
to invest $200 billion from its vast foreign reserves, creating one
of the world's richest investment funds at a time of rising
scrutiny of such state-run entities.
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Financial analysts are watching to see where the new company
invests and the impact on financial markets, especially demand for
U.S. Treasury securities, in which Beijing holds a big share of its
reserves.
Beijing announced plans for the fund in March in hopes of earning
higher returns on its $1.3 trillion in foreign reserves, which are
the world's largest.
The China Investment Corp. will start out with $200 billion in
capital, the Xinhua News Agency said. Its chairman is Lou Jiwei, a
deputy secretary-general of China's Cabinet and a former finance
minister, Xinhua said. The general manager is Gao Xiqing, vice
chairman of the agency that manages China's state pension and
social welfare fund.
The fund is to operate independently and keep investment decisions
separated from government policy, Xinhua said. The agency has yet
to disclose its investment goals.
An official involved in creating the fund told The Associated Press
in May it was likely to try to avoid causing political strains by
buying minority stakes in companies abroad rather than pursuing
outright takeovers.
Chinese companies have been uneasy about foreign acquisitions since
an uproar in 2005 over state-owned oil company CNOOC Ltd.'s attempt
to acquire U.S. oil and gas producer Unocal Corp. CNOOC dropped its
bid after American critics said it might endanger energy
security.
Some officials and economists want the new fund to finance foreign
expansion by Chinese companies or buy oil and other resources
needed by the country's booming economy.
The rapid growth of such sovereign wealth funds run by Asian and
Middle Eastern governments has raised questions about their
intentions and impact on financial markets.
The European Union might restrict investments by government funds
unless they disclose more about what they invest in and why, the
top EU economic official said this week.
"If they don't agree to these criteria, we can find good reasons to
react in some cases," EU Economy Commissioner Joaquin Almunia told
London's Financial Times in an interview.
China's investments have drawn special attention because of the
country's large and growing economic and military might.
The new fund would dwarf foreign investment activity by Chinese
companies, which spent $21 billion abroad last year, according to
the government.
On Friday, a group that includes China's biggest maker of network
equipment, Huawei Technologies Co., announced it would pay $2.2
billion to buy U.S. network gear supplier 3Com Corp. in a deal that
could draw similar scrutiny. Huawei was founded by a former Chinese
army officer and its early sales were to the military, but the
company says most of its business now is with civilians.
Finance Minister Jin Renqing said in March that China's
investment agency would be modeled in part on Singapore's
government-owned Temasek Holdings, which invests in banks, real
estate and other industries in China, India and
elsewhere.
China currently holds its reserves in U.S. Treasury securities and
other safe but low-yielding instruments.
A key question about its new strategy has been the possible impact
on the Treasury market. Chinese purchases have helped to finance
the U.S. budget deficit, and Beijing has given no indication of how
much money might be diverted to other assets. But lower Chinese
demand could force Washington pay higher interest to attract
buyers.
The new Chinese agency made its first deal even before it was
formally launched, agreeing in May to pay $3 billion for just under
10 percent of American investment firm Blackstone Group LP.
That investment has performed poorly, with Blackstone shares
falling since an initial public offering in June.