From: Financial Times By Richard McGregor in Beijing

China’s new sovereign fund may extend its provisional investment mandate to finance the overseas expansion plans of some of the country’s largest state enterprises, a senior government official said Wednesday.

Li Rongrong, the chairman of the State Assets Supervision and Administration Commission, which oversees 155 large state companies, said Wednesday he had had discussions with the fund about joint financing of overseas investments.

“We decided to cooperate because he (Lou Jiwei, the head of the fund) needs good companies (to invest in). If you only have money, you need to decide what to invest in,” Mr Li said, according to a Reuters report.

“So there are objective reasons for thinking we can cooperate, and we surely will do so.”

The China Investment Corporation, which has yet to be formally established, is being set up to more aggressively manage a portion of China’s swelling foreign exchange reserves of more $1,400bn.

The fund will initially have $200bn under management, although some of this might be used to buy existing foreign currency holdings of a Chinese government holding company.

Although the fund has yet to make a formal statement about its investment mandate, its senior officials have told visiting foreign advisers that it will have a singular focus on securing a financial return on their investments.

China’s reserves are now conservatively managed by an agency under the People’s Bank of China, the central bank, with most of the money in US Treasury bonds and government-backed mortgage securities.

Mr Li’s statement may strike a discordant note on one level, because the fund was initially expected to steer clear of the controversies associated with Chinese state acquisitions overseas.

But the recent turmoil in global financial markets may have prompted the fund to broaden its investment mandate, according to local economists.

The fund has been deluged with advice about what it should invest in, with a number of senior leaders saying last year that the foreign exchange reserves should be used to buy overseas resources.

The 155 companies overseen by SASAC include some of China’s largest enterprises, ranked high in the Fortune 500 list, in the oil, telecommunications and steel sectors.

The companies themselves already have large amounts of cash, and it is not sure why they would need any money from the fund.

The fund’s establishment has coincided with rising disquiet in some countries about the transparency of sovereign investors and a debate about whether new rules were needed to govern their operations.

Angela Merkel, the German Chancellor, has been outspoken in promising to “protect” German firms from being bought by sovereign funds.

Copyright Fund China 2009.

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