BEIJING (Reuters) - China will likely appoint savvy international dealmakers to run its giant sovereign wealth fund and Commerce Ministry in a soft power push to soothe fears over a planned spending spree to boost Beijing’s ownership of strategic global assets.
Securities regulator Guo Shuqing is tipped to take the helm at the $482 billion state investment vehicle, China Investment Corp (CIC) CIC.UL, and China’s chief trade representative, Gao Hucheng, is seen running the Commerce Ministry, two sources with leadership ties told Reuters.
The appointment of seasoned, English-speaking financial negotiators to run the two agencies is a sign that China’s new leaders would make commercial logic a major thrust of the push for market access Beijing needs for planned acquisitions of $560 billion of overseas assets in the five years to end-2015.
“The next government will pay more attention to trade policy and investment policy and the direction will be more open,” said Tu Xinquan, associate director at the China Institute of WTO Studies at the University of International Business and Economics in Beijing.
Sources with ties to the leadership and officials at China’s top ministerial think-tanks say the change of personnel reflects the focus President-in-waiting Xi Jinping and Premier-designate Li Keqiang have on furthering China’s ambitions in the global economy. Academics said such appointments fit with the overall external thrust of China’s new leadership.
“Here you have people who know the global system, and this is about China becoming much more active in it,” said Scott Kennedy, director of the Research Center for Chinese Politics & Business at Indiana University.
Guo has climbed to the top of China’s financial ranks by sticking to a formula combining a balanced approach to risk with gradual reform. His favorite proverb - “Listen to both extremes and take the middle course” - speaks volumes about the approach the former chairman of China Construction Bank (CCB) (601939.SS) (0939.HK) took to managing the world’s second-most valuable financial institution.
“Don’t take too much risk. But not too little either. If you don’t take any risk how can you make any money,” the 56-year old quipped in an interview with Reuters in 2010.
The philosophy major and Oxford-educated scholar, who speaks English fluently, has moved easily between academia, government and a rapidly growing commercial sector that has helped China become the world’s second-biggest economy.
He joined CCB as chairman in 2005 after a $22.5 billion bailout left the State Administration of Foreign Exchange, which Guo headed, as the bank’s largest shareholder. Seven months after Guo took over, CCB sold shares publicly for the first time in Hong Kong and two years later in Shanghai - China’s first state-owned lender to float shares in both bourses.
“The financial markets are generally quite positive on Guo, because he’s got a track record of delivering on his promises,” said Stanley Li, an analyst at Mirae Asset Securities in Hong Kong who has met Guo a number of times. “A reformer who is able to deliver is actually rare in China, as you tend to get people who talk a lot but can’t deliver, or you get those who just don’t want to rock the boat.”
Gao has been in charge of China’s global trade negotiations since 2010, and his years of experience as a trade negotiator could elevate the Commerce Ministry’s role in policy battles, sources say.
The 61-year old, who didn’t join the Communist Party until his late 30s, worked at the ministry’s predecessor - the Ministry of Foreign Trade and Economic Cooperation - beginning in the early 1990s. Currently the longest serving of the Commerce Ministry’s vice ministers, Gao studied abroad, worked in Africa, and earned his doctorate in sociology in Paris, according to his official biography.
The likely appointments are part of a sweeping redistribution of top financial posts that will take place during the annual 2-week full session of parliament that began on Tuesday.
If Guo takes the CIC job, he would replace Lou Jiwei, 62, who is tipped to become finance minister, the sources said, adding that insurance regulator Xiang Junbo, 56, is the front-runner to succeed Guo as securities regulator.
Lou will succeed Xie Xuren, who is the front-runner to become chairman of the National Social Security Fund, which manages the national pension fund that stood at 18.3 trillion yuan ($2.94 trillion) as of mid-June 2012. Xie is tipped to replace Dai Xianglong, 68, who will retire.
Xie has reached the compulsory retirement age of 65 for cabinet ministers and was left out of the Communist Party’s elite 205-member Central Committee during a once-in-a-decade handover of party power last November because he offended many powerful interest groups.
“Xie Xuren (as finance minister) rarely dined out. And when he did, he would pay his own way, embarrassing his host and fellow guests,” said one financial industry source with direct knowledge of Xie’s style.
The securities regulatory body, the sovereign wealth fund, the Finance Ministry and the social security fund declined immediate comment on the planned personnel changes. Guo, Lou and Xie could not be reached.
Reuters reported last week that central bank governor Zhou Xiaochuan is set to keep his job for an unspecified period, despite being aged 65, as the country’s leaders seek to maintain the momentum of financial reform. He would be made a vice chairman of parliament’s advisory body, giving him “national-level leader” rank that would exempt him from compulsory retirement, sources have said.
Like Zhou, Chen Yuan, 68, is likely to be appointed a vice chairman of the advisory body, the sources said, adding that Chen would stay on as chairman of China Development Bank CHDB.UL, the sources said. In its role as a policy bank, state-owned CDB lends to China’s largest infrastructure projects and offers financial aid for the country’s industrial giants to internationalize.
The Commerce Ministry is seen as one of the Chinese agencies most amenable to broader reforms, which could give Gao’s appointment broader implications, said Tu, the professor.
That is significant given Beijing’s growing interest in owning physical assets in the economies where China has a steady income from trade which could be used to fund purchases. That approach achieves twin goals of balancing capital flows and reducing exposure to paper assets from the United States and Europe, which analysts say China’s top policymakers have tired of.
Beijing has watched for three years as Europe’s crisis has choked growth and demand in China’s biggest export market and stoked default risks on the near $800 billion of euro zone government bonds China is estimated to own as part of its $3.3 trillion of foreign exchange reserves.
Meanwhile, record low yields on U.S. Treasuries and a depreciating dollar have seen the value of China’s dollar holdings fall by a third in the last 10 years, adding weight to Beijing’s view that the time is ripe to change investment tack.
If China can engineer a rise in cross-border corporate merger and acquisition activity, it could take some of the political sting out of the rebalancing flows. But the reluctance of foreign governments to accept the acquisition of stakes in strategic assets by entities ultimately controlled by China’s Communist Party, and a patchy track record in dealmaking, have led to frustrations.
The long delays to approving the record $15.1 billion takeover of Canadian oil and gas company Nexen by Chinese state-owned oil major CNOOC Ltd 00883.HK - the deal finally closed in February after seven months - offer a typical example.
Outbound China deals ran into trouble everywhere from Iceland to Myanmar in 2011, including a $5.4 billion PetroChina (601857.SS) deal in Canada, a $7 billion CNOOC (0883.HK) transaction in Argentina and Bright Food Group’s SHMNGA.UL $2.5 billion bid to buy French yoghurt maker Yoplait. The United States regularly objects to Chinese takeovers on the grounds of national security.
($1 = 6.2181 Chinese yuan)
Additional reporting by Victoria Bi, Lucy Hornby, Huang Yan and Aileen Wang; Writing by Nick Edwards; Editing by Ian Geoghegan