Published: 2007-12-06

The initial proposal did not call for establishing an independent body. instead, the State Administration of Foreign Exchange was supposed to be in charge of the bonds. However, further discussions reached a consensus that “an institution specially geared to increase yields of foreign exchange assets within controllable risks should be founded.”

Lou, the former deputy minister of Ministry of Finance, then became the board chairman of the fund.

First Get Rolling

With all initial capital financed by treasury bonds, CIC has been facing high cost since the very beginning of its operation. “We are under great pressure at the moment. Let’s suppose a 5 percent yearly interest for special treasury bonds. This means every morning, from the moment I open my eyes, I need to make 300,000,000 yuan.” says Lou.

And the figure will be bigger if an accurate operation cost and the accelerating exchange rate are both counted. At present, China’s exchange yuan is appreciating at 6 percent on average every year.

Lou says the fund will mainly be operated by other institutions before enough qualified personnel are recruited, and will gradually operate on its own as its team matures.

He also notes that due to its pressure in interest payment, the fund will most probably focus on fluid assets rather than infrastructure; and, to drain liquidity, portfolios of international financial products will be preferred in non-yuan areas.

In the spirit of stable development, the fund will adopt a principle of “mainly open market investment and less alternative investment”.

The fund pursues, according to Lou, rational and stable yields in the long run within acceptable risks as well as maturity in corporate governance.

Add Flexibility to Assets

Formerly the central bank’s investment arm and now a wholly owned subsidiary of CIC, the Central Huijin has shared some of the fund’s pressure in asset allocation and thus brought more flexibility to the fund, says Lou.

The main responsibility of Central Huijin, according to Lou，is to contribute capital to major banking institutions as has been authorized by the State Council, and focus more on improving the company's value without direct intrusion in their operation.

Lou says that without this, the CIC could have only invested in bonds, adding that the fund “won’t give up any opportunity of direct investment”.

As for the subsidiary company’s future, Lou notes that its profits will be wholly dominated by CIC, but its operating assets will not be integrated.

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