Too Concentrated in Finance
One senior financial expert who wishes to remain anonymous says that Cambridge Associates will be less helpful to the CIC now since the latter's portfolio is already saturated with financial investments.

On November 26th 2007, Yale economist Chen Zhiwu suggested that the CIC take the opportunity of the US sub-prime crisis to buy equity stake in international financial institutions which were struck by the crisis and in demand of capital.

The next day, at the "China Forum" hosted by the Industrial and Commercial Bank of China and HSBC, chairman of CIC Lou Jiwei echoed said that some sovereign wealth funds had successively invested in losing huge financial institutions in order to stabilize international financial markets.

Less than one month later the CIC declared its business deal with Morgan Stanley. The CIC would spend 5 billion US dollars to purchase convertible securities issued by the firm, after full conversion of which the CIC's share of the company would not exceed more than 9.9%.

One source close to the CIC who wishes to remain anonymous says that besides Morgan Stanley, two other financial giants ailing from the credit crunch had also negotiated with the CIC during that period as well. The source says that the CIC invested in Morgan Stanley because it was about to publish its annual financial report and reveal 7.4 billion US dollars in losses, leaving it little time to bargain.

Ther CIC has made three major investments, two of which involved the purchase of shares in financial institutions--3 and 5 billion dollars in Morgan Stanley and Blackstone respectively. In addition, the CIC spent 100 million dollars on shares in China Railway in Hong Kong. The source close to the CIC says that all things considered, the China Railway investment is not significant and more likely considered for short-term earnings, which will not likely be the future investment style of the CIC.

Thus shares in Blackstone and Morgan Stanley remain the bulk of the CIC's portfolio. Central Huijin Investment Company (CHIC), which is a wholly-owned subsidiary of the CIC, has invested funds in the Bank of China, China Construction Bank, Bank of Communications, the Industrial and Commercial Bank of China and the China Development Bank. When combined with the funds invested in a securities brokerage firm in 2005, the total is close to 90 billion dollars. If adding a planned 40 billion dollar investment in the Agricultural Bank of China, the CHIC will have spent 130 billion dollars on Chinese financial institutions, and another 8 on US ones.

And it leaves only around 60 billion dollars for other investments. If considering that the company must maintain a degree of liquidity, that amount is even lower.

Chen Zhiwu says that even if the CIC can spend all of 60 billions dollars on other investments, it won't be enough of a diversification, and that the CIC would still suffer huge losses if the Chinese financial industry went into decline or a global financial crisis emerged.

Pressure to Make Payments
The Ministry of Finance issued 1.55 trillion yuan in special national debt bonds in order to etsablish the CIC. On February 29th 2008 the first interest payment for the first batch bonds is due, with the CIC required to pay 12.9 billion yuan in accordance with the 4.3 percent annual interest rate.

At the end of last year, it had 750 million dollars in losses due to the Blackstone investment. And neither the Morgan Stanley nor China Railway can earn much in the short-term. Only dividends from the CHI's investments in three state-owned banks can be put towards interest rates.