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China unleashes cautious giant onto world's financial markets
1 day ago
BEIJING (AFP) — There was no champagne, no music, and just a few young women in traditional dresses.
The low-key ceremony that marked the launch of China Investment Corp. this weekend could reflect the cautious manner in which Beijing intends to unleash the largest fund in history onto the world's financial markets.
The much-anticipated corporation will be in charge of 200 billion dollars -- nearly one-sixth the nation's enormous forex reserves -- but it will not flaunt its wealth, observers said.
"They're going to be passive investors. They're going to take minority shares. And the most important thing is going to be safety," said Chen Xingdong, Beijing-based chief economist at BNP Paribas.
China Investment Corp. is tasked with diversifying and maximising returns on part of the country's huge forex reserves, topping 1.3 trillion dollars and growing by the second.
It is estimated that about 70 percent of this enormous amount is placed in US dollar assets, including Treasury bonds that are as low-yield as they are safe.
To do better than this, the company, headed by respected former vice finance minister Lou Jiwei, will not have to invest in a flamboyant manner.
Even so, the modesty that attended the inauguration of the company on Saturday could suggest a deliberate strategy to soothe concerns abroad.
The emergence of a 200-billion-dollar juggernaut has already set alarm bells ringing over the potential impact on world financial markets.
But exactly how the company is eventually perceived by the outside world will largely depend on the attitude management adopts, economists argue.
The worst thing China could do would be to sweep into, say, the world energy markets and make a series of high-profile acquisitions of oil companies or gas fields.
"If they do not end up controlling foreign companies, there wouldn't be many political issues," said Sun Mingchun, a Hong Kong-based economist with Lehman Brothers.
"It's a good idea to be low-profile and stress the business side of investment rather than the political side and let the outside world feel it is a business decision, not a political one."
If the company has indeed decided against the bull-in-a-china-shop approach, it may have got off to an uncharacteristic start.
In May, long before it had even been officially established, it invested three billion dollars in US private equity group Blackstone, triggering questions about just how aggressive this newcomer was going to be.
Analyst now said the Blackstone deal is not likely to be typical of the kind of investments the company will make.
The 10 percent exposure in the Blackstone deal is fairly risky, and analysts expect the company to prefer smaller-risk, one- or two-percent ownership in listed companies.
Even so, behind the intentionally cautious attitude, there is little doubt among observers that this is a creature with the power to rock world markets.
"The company will be a formidable force on the global financial market. The fund will be the largest of its kind in the world," said He Fan, an economist with the Chinese Academy of Social Sciences, a Beijing-based think tank.
The emergence of China Investment Corp., he said, was part of a tectonic inter-continental, inter-generational shift in the world economy.
The nations of the west are now becoming ageing societies, and have to sell out of some of the assets they have accumulated in the past.
This is where China is taking over, buying up assets for when it itself becomes an greying society, which, based on current demographic trends, will be in the not too distant future.
"It's a win-win situation. If the issues is politicised, China may run into some troubles over this type of transactions, but economically it benefits both
1 day ago
BEIJING (AFP) — There was no champagne, no music, and just a few young women in traditional dresses.
The low-key ceremony that marked the launch of China Investment Corp. this weekend could reflect the cautious manner in which Beijing intends to unleash the largest fund in history onto the world's financial markets.
The much-anticipated corporation will be in charge of 200 billion dollars -- nearly one-sixth the nation's enormous forex reserves -- but it will not flaunt its wealth, observers said.
"They're going to be passive investors. They're going to take minority shares. And the most important thing is going to be safety," said Chen Xingdong, Beijing-based chief economist at BNP Paribas.
China Investment Corp. is tasked with diversifying and maximising returns on part of the country's huge forex reserves, topping 1.3 trillion dollars and growing by the second.
It is estimated that about 70 percent of this enormous amount is placed in US dollar assets, including Treasury bonds that are as low-yield as they are safe.
To do better than this, the company, headed by respected former vice finance minister Lou Jiwei, will not have to invest in a flamboyant manner.
Even so, the modesty that attended the inauguration of the company on Saturday could suggest a deliberate strategy to soothe concerns abroad.
The emergence of a 200-billion-dollar juggernaut has already set alarm bells ringing over the potential impact on world financial markets.
But exactly how the company is eventually perceived by the outside world will largely depend on the attitude management adopts, economists argue.
The worst thing China could do would be to sweep into, say, the world energy markets and make a series of high-profile acquisitions of oil companies or gas fields.
"If they do not end up controlling foreign companies, there wouldn't be many political issues," said Sun Mingchun, a Hong Kong-based economist with Lehman Brothers.
"It's a good idea to be low-profile and stress the business side of investment rather than the political side and let the outside world feel it is a business decision, not a political one."
If the company has indeed decided against the bull-in-a-china-shop approach, it may have got off to an uncharacteristic start.
In May, long before it had even been officially established, it invested three billion dollars in US private equity group Blackstone, triggering questions about just how aggressive this newcomer was going to be.
Analyst now said the Blackstone deal is not likely to be typical of the kind of investments the company will make.
The 10 percent exposure in the Blackstone deal is fairly risky, and analysts expect the company to prefer smaller-risk, one- or two-percent ownership in listed companies.
Even so, behind the intentionally cautious attitude, there is little doubt among observers that this is a creature with the power to rock world markets.
"The company will be a formidable force on the global financial market. The fund will be the largest of its kind in the world," said He Fan, an economist with the Chinese Academy of Social Sciences, a Beijing-based think tank.
The emergence of China Investment Corp., he said, was part of a tectonic inter-continental, inter-generational shift in the world economy.
The nations of the west are now becoming ageing societies, and have to sell out of some of the assets they have accumulated in the past.
This is where China is taking over, buying up assets for when it itself becomes an greying society, which, based on current demographic trends, will be in the not too distant future.
"It's a win-win situation. If the issues is politicised, China may run into some troubles over this type of transactions, but economically it benefits both
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