China to launch multibillion-dollar investment fund on Saturday

THE ASSOCIATED PRESS

BEIJING - A government fund that is to invest part of China's US$1.3 trillion in foreign currency reserves is due to be officially launched on Saturday, according to news reports.

Financial analysts are watching the agency closely to see where it invests and its possible impact on financial markets. It is expected to be entrusted with $200 billion, which would make it one of the world's richest investment funds.

The agency, which agreed in May to pay $3 billion for just under 10 per cent of U.S. private equity firm Blackstone Group LP, is likely to be called the China Investment Corp., Dow Jones Newswires and the Chinese newspaper Securities Journal reported Thursday. Both cited unidentified sources.

An Chinese official who was involved in setting up the fund said he could not confirm the reports. Foreign reporters will be barred from the official opening ceremony, said Jesse Wang, chairman of state-owned Jianyin Investment Co.

Beijing created the fund in an effort to earn higher returns on its currency reserves, which have soared amid a boom in export revenues. As of July, China had $407.8 billion invested in safe but low-yielding U.S. Treasuries, according to U.S. government data.

Its creation comes at a time of tensions with Washington over China's swelling trade surplus and unease in the United States and elsewhere over Beijing's growing economic and military might.

Authorities say the agency will be modelled in part on Singapore's government-owned Temasek Holdings, which invests in banks, real estate and other industries in China, India and elsewhere.

A key question has been the possible impact of the new strategy on the market for U.S. Treasury securities.

Beijing is a big buyer of Treasuries, helping to finance the American government budget deficit. Chinese officials have given no details of how much money might be diverted to other assets.

Wang, who was involved in negotiating the Blackstone purchase, told The Associated Press in May that the Chinese agency was expected to try to avoid political strains abroad by purchasing minority stakes in companies rather than pursuing corporate takeovers.

Chinese companies have been uneasy about foreign acquisitions since the uproar in 2005 over state-owned oil company CNOOC Ltd.'s attempt to acquire U.S. oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.

© The Canadian Press, 2007