Spreading wealth

Africa and new frontiers

Since its inception in 2007, CIC has strived to generate higher returns on China's huge foreign exchange reserves. Most of its investments have been spread across a range of countries such as Australia, Brazil, France, Russia and the UK.

Last year, nearly 27.8 percent of the equity investments CIC made were in advanced economies other than the US, with Europe being the mainstay. The corresponding figure for such investment in 2011 was 20.6 percent.

A look at the direct investment projects of CIC last year shows that five out of six such projects were in Europe, including France, Russia and United Kingdom. In 2012, 23 percent of CIC's equity purchases came from the emerging market, especially in the Asia-Pacific region. The proportion was 29.6 percent in 2011.

But that seems to be gradually changing as Africa offers more new destinations for the fund.

In March, CIC's Vice-Chairman Gao Xiqing disclosed that the fund's investment focus is shifting from the US and European countries to West and East Africa.

"CIC is in talks with government officials from countries in these areas for railway, port and highway investment projects, especially for the cross-border highways," he says.

During the same month, President Xi Jinping visited three African nations and vowed to continually expand investment cooperation with African countries, especially in agricultural and manufacturing industries. Xi pledged to provide $20 billion credit to African nations within three years.

To some extent, the overall returns of CIC are still decided by the performance of its investment in the global mineral and energy resources market, says Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation.

"The lackluster performance of the fund in 2011 was due to the dull global commodity markets," Mei says. "It is heartening to note that the fund has changed its orientation and moved on to other geographies such as Africa, especially with infrastructure investment."

Ron Sandrey, an economist at the African Development Bank Group, adds: "Chinese funding has been directed largely at hydropower and transport projects, with important benefits for industrial productivity, cross-border trade and connectivity to global markets.

"These investments could play a pivotal role in the promotion of economic diversification in African countries by facilitating market access and reducing transactions costs."

China's investment in African infrastructure will also spur the development of the private sector, he says.

Strategy criticism

More generally, analysts feel that the signals exhibited by CIC in recent years show it is keener on energy resources and fixed-asset investment projects overseas than buying financial products, such as treasury bonds and shares.

On the other hand, it has spurred criticism that Chinese investment could be a potential threat to local development.

CIC officials, however, dismiss such charges.

"The CIC has always identified itself as a pure financial investor. Although it is the biggest manager of the country's foreign exchange reserves, it is more of a strategic investor," the anonymous CIC official says.

Wu Weihai, a researcher at the research institute under the Ministry of Industry and Information Technology, says wealth funds usually base their global investments on two factors.

The first approach focuses on purchasing equity in various companies and industries to gain dividend and stock premium. The other concentrates on rights purchases in select companies to gain management control.

"It is obvious that the CIC investment strategy falls into the first category," Wu says.

The next step for CIC should be to invest in overseas industries that have advanced technologies or management capabilities, as it would help accelerate domestic industrial upgrading and facilitate economic rebalancing, Wu says.

"The company's goal is pursuing long-term returns by customizing investment strategies based on different projects in different countries," CIC Vice-Chairman Gao says. "The investment theme is not for mergers and acquisitions, or to control any overseas company. And we don't want to be seen as a destroyer by any country." According to CIC's latest annual report, by the end of last year, its total assets rose to $575 billion from $482 billion in 2011. The company, which manages part of the nation's $3.5 trillion foreign exchange reserves, had invested about 32 percent of its money in public equities and 19.1 percent in fixed-income securities by the end of 2012. CIC's investment in the US stock market accounted for 49.2 percent of its funds in public equities.

"We have increased purchases of public equities and steadily boosted long-term investment in infrastructure construction, energy and mineral resources, and real estate," the CIC source says.