POLITICAL ECONOMY

China sovereign wealth fund speeding up investment - mining a target

China's sovereign wealth fund CIC has been speeding up its investment programme spending as much each month this year as in the whole of 2008 - and mining and energy are important targets.

Author: Lawrence Williams
Posted: Friday , 23 Oct 2009

LONDON - 

According to reports in the Chinese press, China's $200 billion sovereign wealth fund, China Investment Corporation (CIC) is stepping up its rate of investment in overseas companies and institutions to take advantage of what it perceives as longer term values resulting from the global financial crisis.

China's People's Daily reports CIC chairman Lou Jiwei as saying that the fund was circumspect in its investment in 2008 as markets plunged investing only $4.8 billion outside China that year, but this year it has been investing around as much each month overseas as it did in the whole of 2008 with the main targets including mining, energy and real estate.

While the principal purpose of the Fund is to create wealth for the country with its huge dollar surpluses there does also seem to be a dual approach in play, particularly with regard to the mining and energy sectors where an element of securing long term supplies for China's ever-growing industrial sector has to be an important factor.

However as we have reported here beforehand, CIC, as well as various state-owned minerals sector companies, seem to be being pushed by the Chinese government to work day and night to divest as much as possible in its surplus dollars in solid assets beneficial to the nation, as it sees the value of the U.S. dollar declining almost daily.

In the last few weeks alone CIC has been reported as taking major stakes in Russian and Kazakh oil companies, getting involved in a rare earths development in Inner Mongolia in China and taking a major stake in Hong Kong commodities company Noble Metals, which itself holds important stakes in some Australian and East European mining companies.  Mining and oil, it would appear, are still a major focus for the Fund.

The purchasing power of CIC is huge.  At the end of 2008 some 87.4% of its overseas investments were held in cash and cash equivalents.  There have also been indications that the Chinese government is prepared to pump more funding into CIC should it be needed.