| BEIJING, Sept 9
BEIJING, Sept 9 Beijing is considering
restructuring China Investment Corp (CIC), its $300 billion
sovereign wealth fund, in a bid to boost accountability, two
sources with knowledge of the plan said.
The proposed reorganisation, which is bound up with
maneuvering among China's political power brokers ahead of the
Communist Party's five-yearly congress in 2012, could result in a
sharper focus by CIC on its overseas portfolio.
CIC [CIC.UL] has been aggressively investing across the globe
since it was established in September 2007, but like other Asian
sovereign funds it has been burnt by some of its early forays
into the U.S. financial industry.
One proposal calls for CIC to be broken up into three parts,
two of which would focus on equity and strategic resources
investment, one source with direct knowledge of the matter told
Reuters, requesting anonymity because he was not authorised to
speak to reporters.
Another suggests CIC and its wholly owned subsidiary, Central
Huijin Investment Ltd, part ways, a second source said.
Huijin, which holds Beijing's stakes in key domestic
state-owned financial institutions, came under CIC's wing when
the latter was set up.
"There is no timetable for CIC and Huijin going separate
ways," said the second source, who also requested anonymity. "The
State Council has yet to make known its position."
China's sovereign wealth fund is accountable to the State
Council, China's cabinet, which has the final say on the planned
CIC and the Finance Ministry had no immediate comment.
STRONGER FOCUS OVERSEAS
Analysts say making Huijin independent could elevate its
status within the Chinese bureaucracy, giving it more power as
the largest shareholder in China's biggest banks.
"There are huge differences between international investments
and domestic financial asset management. So there is good reason
for the two to separate," said Guo Tianyong, a professor with the
Central University of Finance and Economics.
For its part, CIC could find that without links to Huijin it
can make a stronger case to foreign governments that it should be
treated as a commercial entity rather than as a policy arm of the
A stronger focus on international investments could also mean
the fund stands a better chance of being handed another chunk of
China's $2.45 trillion worth of international reserves, which are
managed conservatively by the central bank.
CIC was set up with the aim of seeking higher returns from
riskier investments for part of the country's stockpile of
foreign exchange, by far the largest in the world.
To create CIC, the Finance Ministry issued 1.55 trillion yuan
in special bonds to buy about $200 billion of the reserves from
the People's Bank of China.
That sum had grown to almost $300 billion by the end of 2009,
thanks largely to the rising value of Huijin's bank stakes, and
CIC has been lobbying for additional funding as it scours the
globe to secure natural resources for China's thrumming economy.
But CIC's start was rocky.
The fund came under fire from critics in the Communist Party
after big paper losses on early high-profile investments in U.S.
private equity firm Blackstone (BX.N) and Wall Street investment
bank Morgan Stanley (MS.N).
"No one is held accountable when an investment loses money,"
the first source said.
"CIC will undergo restructuring because it is too big, which
is not ideal," the source said.
CIC repeatedly stresses that it is a financial investor,
seeking high returns not corporate control.
But some Western critics fear state-owned sovereign funds
will build up stakes in leading companies that will give them
influence in politically sensitive sectors.
(Additional reporting by Xie Heng and Shen Yan; Editing by Alan
Wheatley and Don Durfee)