Moving up the ladder

China's sovereign wealth fund has changed in size and shape over the years

Despite its present size and scale, China's first sovereign wealth fund had relatively humble beginnings. The Beijing-based wealth fund started off as a state-owned enterprise on Sept 29, 2007, with an initial corpus of $200 billion (148 billion euros).

In the early days, its role was mainly to diversify China's foreign exchange holdings and maximize returns for shareholders within acceptable levels of risk.

That role has evolved over the years to other corporate services such as equity participation in global firms, providing capital for cash-strapped enterprises and even investment in foreign utility services. CIC now has assets worth about $575 billion under its management.

Unlike several other such funds, CIC has clearly demarcated its domestic and overseas activities. While China Investment Corp International Co Ltd handles the overseas business, Central Huijin Investment Ltd manages the domestic operations.

The domestic operations of the fund are relatively modest, and it is the overseas subsidiary CIC International, set up in September 2011, that has been the main face of the fund.

CIC also got a capital infusion of $49 billion from the government after the overseas unit was established. Central Huijin, on the other hand, holds controlling stakes in several state-owned financial institutions in China and also provides capital to select domestic financial institutions.

Though it has separate entities for domestic and overseas operations, its investment portfolio is often a mix of cash, equities, fixed-income, absolute return and long-term investments.

In addition, the fund scouts for active overseas opportunities, including mergers and acquisitions, through its overseas units and offices.

In November 2010, CIC opened its first subsidiary in Hong Kong, CIC International (Hong Kong) Co Ltd, and in January 2011 it opened an office in Toronto, Canada.

Ding Xuedong, who replaced Lou Jiwei, the founding chairman, in July, is the current head of the wealth fund. Before taking up this assignment, he was the deputy secretary-general of the State Council, the country's cabinet.

Experts believe he has a tough challenge as the fund has to devise new investment strategies in a complicated external environment.

During Lou's five-year tenure as the CIC chief, the fund achieved a 3.8 percent cumulative annualized return by the end of 2011. The worst result also came that year, when the fund posted a 4.3 percent loss from all its overseas investment projects.

-Chen Jia

(China Daily Africa Weekly 09/27/2013 page7)