Tag Archives: China Investment Corp

Ding Xuedong: Half A Trillion Dollar Man

Ding Xuedong is little known outside Chinese political circles but considered a rising star within them. The same could have been said of Lou Jiwei, his predecessor as head of China’s $480 billion sovereign wealth fund, China Investment Corp. (CIC), when he took on the job.

Lou moved up to finance minister in March. The three-month gap in filling the last of the “big” finance vacancies in Beijing as a result of the leadership transition, has spawned rumors that the appointment had become another sparing ground between economic reformers and the Party old guard. But it is also the case that several prospective candidates turned the position down, fearing that inheriting Lou’s investment portfolio might turn out to be a poisoned chalice.

The 53 year old Ding, who is expected to be formally named to the job shortly, is currently a senior State Council official. There, he has worked with new prime minister Li Keqiang. Before that, he was a vice minister at the finance ministry, where he has spent most of his career, much of it concerned with agricultural finance. Not the most obvious background for someone who will have half a trillion dollars of assets to manage in international capital markets. But then Lou didn’t have that either when he launched CIC in 2007.

The question occupying asset managers, now they have a name, will be the extent to which Ding may reorient CIC, the world’s fifth-largest sovereign wealth fund, away from the natural-resource and energy investments favored by Lou (and central government) and towards alternative assets and direct investment in developed economies — at a time when attitudes in America and Europe against such state-backed investment are hardening.

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Still Water

Thames Water's Farmoor Reservoir, Oxfordshire.

The acquisition by China Investment Corp., China’s sovereign wealth fund, of an 8.7% stake in Thames Water, which supplies water to 14 million consumers in southern England, may prove in time be a precursor to more Chinese investment in European infrastructure, but Beijing likes stability. What is more stable than utilities in Western markets?

Update: Our man in London points out that Beijing is a late arrival to the U.K. utilities foreign-ownership party, reminding us that Li Ka-shing’s Cheung Kong bought Northumbrian Water last year, while Bristol Water was bought by a Canadian investment company. Thames Water itself is owned by Kemble Water, a consortium of investors led by the Australian infrastructure investment bank Macquarie, which bought it from the German group RWE for a cut-price £8 billion in 2006.

Though the price CIC paid for its Thames Water stake was not disclosed, the likely figure is of the order of $1 billion, which won’t make much of a dent in its $410 billion coffers.

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CIC’s Gao Shines A Little Light On China’s Sovereign Wealth Fund

In January, Stephen A. Schwarzman, chairman of the Blackstone Group, confided in our man at the World Economic Forum in Davos his surprise at the hullaballoo over sovereign wealth funds, and China’s in particular. He had seen Chinese investors at close quarters for years and known them as passive investors.

Now Gao Xiqing, president and chief investment officer of the China Investment Corp., the sovereign wealth fund that attracts the most attention, has said the same thing. Speaking at an OECD forum in Paris he said that when the $300 billion CIC takes a stake in a foreign company, it wants “to be viewed as just one of the investors” and is not looking to take control of any foreign industries.

Gao acknowledged that many foreign governments feel uncomfortable about CIC’s investments, because of the fact that it is wholly owned by the Chinese government and because of China’s rapid economic expansion, which gives it a swelling trade surplus to recycle. But he said it is not much different from other sovereign wealth funds. Which may not reassure anyone very much.

“Our government has never been transparent for about the past 5,000 years and all of a sudden we are told we need to be transparent. We are trying…”  Gao said. And he offered a couple of insights: CIC had lost around 10% of its value in recent months due to the appreciation of the yuan against the dollar; CIC has ploughed $3.2 billion into a private equity fund run by former Goldman Sachs executive Christopher Flowers that is looking to buy into financial institutions weakened by the global credit crunch.

Which also may not reassure anyone very much either.

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CIC Welcome

While the electioneering U.S. takes China’s and other sovereign wealth fund’s capital but frets about foreigners buying America, the U.K. is courting it. British prime minister Gordon Brown, now visiting Beijing, told his counterpart Wen Jiabao that he would like the China Investment Corp. to set up an office in London as a base from which to invest some of its $200 billion.

True, this is part of London’s continuing battle to one-up New York as the world’s financial capital, but the U.K. has clear attractions for China as an investment front door into the EU. China has an interest in buying into companies with expertise in financial services and with technologies it needs to develop its 20 champion industries. Europe has both, and on the tech side, green technologies in particular. Plus at a time of economic uncertainty, there are companies there going cheap, just as there are in the U.S.

As former Citibank chairman Walter B. Wriston said, capital goes where it is needed, but stays where it is welcome.

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