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    China Business
     Oct 2, 2007
China's trillion-dollar kitty is ready

BEIJING - China Investment Corp (CIC), the country's long-awaited gigantic state investment arm set up to make use of its huge and ever-growing foreign exchange reserve for overseas investment, was inaugurated over the weekend.

The CIC, with a registered capital of US$200 billion, is a solely state-owned company, according to company sources. The state-owned Central Huijin Investment Corporation was merged into the new company as a wholly-owned subsidiary company, the

sources said.

In May, the new company, while still in preparation, made its first investment in non-voting shares, valued at US$3 billion, in the US private equity firm, the Blackstone Group.

The Ministry of Finance (MOF) will keep pouring foreign exchange into the new company following issuances of special treasury bonds, according to company sources. China's legislature approved the special issuance of 1.55 trillion yuan in treasury bonds (US$200 billion) for the new investment company in June.

So far, the MOF has issued more than 700 billion yuan in special treasury bonds, with 600 billion yuan to the central bank and 100 billion yuan targeting the general public. It will issue another 100 billion yuan in treasury bonds by the end of this year.

"We will maintain transparency of company operations on the premise of safeguarding our commercial interests," said Lou Jiwei, the company's newly-appointed board chairman, who is also deputy secretary general of the State Council, or the cabinet. Lou called the CIC a "landmark in deepening the reforms of China's financial system".

Other board members include two executive directors Gao Xiqing and Zhang Hongli; five non-executive directors - Zhang Xiaoqiang, Li Yong, Fu Ziying, Liu Shiyu and Hu Xiaolian; two independent directors Liu Zhongli and Wang Chunzheng; and one director who will be elected from the company's employees.

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 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.

Gao Xiqing was also appointed the company's general manager and Zhang Hongli, Yang Qingwei, Xie Ping and Wang Jianxi were appointed as deputy general managers.

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.

Analysts said CIC's debut was a major move China had made to increase the value of its $1.4-trillion foreign exchange reserve, the world's largest.

The company will mainly pursue combined investments in overseas financial markets, and it will also take over existing businesses of the Central Huijin, which has injected capital into domestic financial institutions to support their reforms, such as shareholding reforms of China's state-owned banks, said the sources.

The CIC will operate in a completely commercial way despite its governmental backup, the sources stressed, explaining that "it will deal with its forex investment business independently by persisting in the principle of separating government functions from company management".

It will try to maximize the proceeds via long-term investments within a range of acceptable risks, the sources said.

"As a state investment institution, the company will work to ease the pressure of rising foreign exchange reserve and absorb market liquidity," said Li Yang, director of the finance research institute of the Chinese Academy of Social Sciences.

"The company's principal purpose is to make profits," said Yang. "The appointments will favor a good outcome as most of the incumbent executives are experienced investment professionals and policy makers. The company would help China realize its resource allocation on a global scale and reduce the economy's reliance on exports.

The same views were echoed by Zhuang Jian, a senior economist of the Asian Development Bank's China resident mission. He said China's central bank would be able to shake off some hedging pressures through buying forex with returns from special treasury bonds.

China's exports rose by 27.6% in the first half of 2007, exceeding imports growth of 18.2%, lifting the trade surplus to $112.5 billion.

(Asia Pulse/Xinhua)

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