China launches US$200 billion investment fund

Financial analysts are watching to see where the new company invests and the impact on financial markets, especially demand for U.S. Treasury securities, in which Beijing holds a big share of its reserves.

Beijing announced plans for the fund in March in hopes of earning higher returns on its US$1.3 trillion (euro915 billion) in foreign reserves, which are the world’s largest.

The China Investment Corp. will start out with US$200 billion (euro141 billion) in capital, the Xinhua News Agency said. Its chairman is Lou Jiwei, a deputy secretary-general of China’s Cabinet and a former finance minister, Xinhua said. The general manager is Gao Xiqing, vice chairman of the agency that manages China’s state pension and social welfare fund.

The fund is to operate independently and keep investment decisions separated from government policy, Xinhua said. The agency has yet to disclose its investment goals.

An official involved in creating the fund told The Associated Press in May it was likely to try to avoid causing political strains by buying minority stakes in companies abroad rather than pursuing outright takeovers.

Chinese companies have been uneasy about foreign acquisitions since an uproar in 2005 over state-owned oil company CNOOC Ltd.’s attempt to acquire U.S. oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.

Some officials and economists want the new fund to finance foreign expansion by Chinese companies or buy oil and other resources needed by the country’s booming economy.

The rapid growth of such sovereign wealth funds run by Asian and Middle Eastern governments has raised questions about their intentions and impact on financial markets.

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