Chinese agency charts bold path

With its $3bn investment in Blackstone, China’s new state investment corporation has delivered an emphatic message at home and abroad that it will be a very different kind of Chinese company from other state enterprises heading offshore.

Even before it has been officially established, and ahead of a decision on how the foreign exchange reserves it will invest will be transferred to its control, the corporation has pulled off an investment coup that would have been unthinkable for China’s cautious bureaucracy only a few months ago.

“This is a very smart move,” said Ha Jiming, the chief economist at CICC, China’s largest investment bank. “If the new body were to invest on its own in world equity and commodity markets, it would be known immediately and could disturb the market and attract a lot of attention.”

Beijing announced the establishment of the investment corporation earlier this year, giving it a mandate to manage more aggressively a portion of China’s $1,202bn in foreign exchange reserves. The reserves are managed by an agency under the People’s Bank of China, the central bank, which keeps the bulk of the money in safe but low-yielding assets such as US Treasury bills.

The agency, the State Administration of Foreign Exchange, has offered limited mandates to some US fund managers, but its ability to take risks is constrained by guidelines.

The new body, which is likely to be called the China Investment Corporation when it opens an office some time later this year, has managed to set itself apart in its first announcement.

As well as announcing its readiness to do business with the international investment community, the new body has delivered a strong signal that it intends to deliver on its mission to achieve higher returns.

It is also a testament to the powerful personalities behind the new body: Lou Jiwei, a former vice-minister of finance, who will head it, and Xie Ping, an outspoken former official at the central bank.

Wang Jianxi, the chairman of China Jianyin Investment, which signed the deal with Blackstone on behalf of the new corporation, said yesterday that the final investment strategy had not been decided.

“But overall, the company will be more flexible and, with proper risk controls, able to look for higher-yielding commercial investments,” he said. “The company will make its own decisions. Its operations will be purely commercial.”

China Jianyin, a state-owned agency that holds investments in Chinese banks and brokerages, was pulled into the deal because of the delay in establishing the new body.

On the issue of whether the new body could also buy commodities, as some Chinese analysts have urged, Mr Wang said: “Personally, I think it should be able to invest in any mature products in the international market.”

Mr Wang said that the corporation had decided to give up the voting rights on its stake in Blackstone because the US investor wanted to preserve the partners’ management of the company.

“We deemed it to be a purely financial investment,” he said. “We thought that it was probably more appropriate for the current Blackstone partnership to be wholly responsible for the management.”

Mr Wang said he doubted that there would be many investments similar to the Blackstone deal before the new agency was formally established. But he did not rule out investments in other private equity ventures after the one-year lock-up period in Blackstone was finished. “There will always be other possibilities in the future,” he said. “It does not mean we will not be engaging with such asset classes when the company is fully established.”

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