Money

Wealth fund CIC targets emerging economies

By Chen Jia (China Daily)
Updated: 2011-04-22 10:22

BEIJING - China Investment Corporation (CIC), the nation's sovereign wealth fund, is planning to further expand its overseas investment in developing economies, said Lou Jiwei, the company's chairman.

Lou said that the rate of return from CIC's investments in 2010 was almost the same as the 11.7 percent figure posted in 2009, and higher than the average rate of China's other big investment companies. However, Lou declined to reveal the exact figure until the publication of CIC's annual report, although the release date has yet to be publicly announced.

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Lou said that the company's board of directors intends to raise more funds and accelerate the pace of expansion in overseas investment, especially in developing markets.

The company increased the number of investments in developing economies in its global investment portfolio in 2010. The rate of return from CIC's investments in developing economies, including Brazil and Indonesia, exceeded that earned in the developed economies last year, according to the chairman.

"CIC needs to diversify asset allocation, and employ different methods to invest in different areas, in order to reduce potential risks and achieve maximum returns," Lou said.

As overseas investments continue to grow, unexpected risks - such as the current unrest in Libya - increase. That means that the Chinese government and the companies planning to invest overseas have to sign bilateral agreements with the target countries to secure the investments, said Yao Guimei, a researcher from the Research Institution of West Asian and North African Affairs at the Chinese Academy of Social Sciences.

Yao suggested that the government should increase cooperation with the Multilateral Investment Guarantee Agency (MIGA), which is a member of the World Bank Group, which provides insurance for overseas investments.

China's foreign-exchange reserves jumped $197 billion to more than $3.04 trillion in March, a figure that "has exceeded the reasonable levels that the country actually needs", said Zhou Xiaochuan, governor of the People's Bank of China (PBOC), in Beijing on Monday.

The surge in China's holdings of foreign currency has resulted in excess liquidity and has fueled inflation which spiked to a 32-month high of 5.4 percent in March, Zhou said. That prompted the PBOC to raise required reserve ratios (RRR) for banks for the fourth time this year.

Sunday's move, which saw the RRR rise to a record high of 20.5 percent, took effect on Thursday, and is intended to soak up excess liquidity and curb soaring inflation.

Zhou said that the existing holdings of foreign currency should be diversified, and that investment agencies, including CIC, need to focus on new investment areas.

Li Yining, a senior economist at Peking University, said that the government should invest the foreign-exchange reserves in shares of foreign companies operating in sectors such as land development, forestry and mining. He also advised the launch of more high-quality overseas investment funds.