From: Financial Times By Richard McGregor in Beijing

China opens a new era of engagement in global capital markets with the launch on Saturday of a sovereign wealth fund designed to invest more aggressively a portion of its swelling foreign exchange reserves.

At a ceremony in Beijing, the China Investment Corp will officially unveil its management team, under the leadership of Lou Jiwei, a former vice-finance minister, and may also outline its investment strategy.

The fund will initially have about $200bn (€140.5bn, £98bn) under management, with the bulk of the remainder of the reserves, which stood at $1,410bn at the end of August, remaining under the control of an agency of the central bank.

A large portion of that $200bn will be used to buy the assets of another agency, which holds the government’s shares in state banks. This will leave the CIC with much less to invest initially.

About $67bn will be spent acquiring assets of the agency, Central Huijin Investment, and tens of billions more may be set aside for the future recapitalisation of state financial institutions.

The CIC has had to grapple with intense internal jockeying over its investment strategy inside China and demands from rival agencies to be represented on its management committee.

The launch also coincides with a rise in critical scrutiny of sovereign funds more generally and protectionist noise from the US and Germany in particular.

The CIC has received a wealth of advice about how it should be run, ranging from recommendations that it outsource all portfolio investment, to pressure from local interests to back state companies going abroad.

“I think the investment strategy will remain opaque for the moment,” a Chinese economist said on Friday.

The fund took markets by surprise earlier this year by buying into the initial public offering of Blackstone, the private equity group, and has since been pilloried in the local media after the subsequent price fall in the US company’s shares.

Despite the growing protectionist pressure, Jing Ulrich, head of China equities for JP Morgan, said there would still be many opportunities for the CIC.

“The resources China needs are primarily in emerging markets like Africa, the Middle East and Latin America,” she said. “But if they are buying a basket of stocks in the S&P 500, or the index, there is nothing to stop them.”

The general manager of the CIC will be Gao Xiqing, a US-educated law professor with extensive experience in the securities industry who is well-known in foreign financial circles.

Copyright Fund China 2009.

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