China confirmed March 9 for the first time that it is establishing a government-controlled entity that will invest its massive foreign exchange reserves, the world's largest at one trillion dollars. "A government investment corporation is going to be established," Finance Minister Jin Renqing said at the annual session of the National People's Congress.
Speculation has been growing as to what steps China would take in an expected effort to maximize returns on the mountain of cash earned mostly by its exports of manufactured goods. China has traditionally bought U.S. Treasury bonds and other American debt but is believed to be interested in higher-yield instruments and in diversifying its holdings, a shift that could have major repercussions on world markets.
Jin offered no other specifics but said the investment vehicle would likely be modeled after Singapore's Temasek Holdings, which is wholly owned by Singapore's Ministry of Finance and manages government assets, including stakes in companies such as the Bank of China, Standard Chartered Bank and CapitaLand.
Previous reports have suggested that the new agency will be put in charge of about $200 billion for investment at home and abroad.
Most of the money would likely be channeled outside China, predicted Shi Jianhuai, a professor in international finance at Peking University's China Centre for Economic Research. "I think the company will be mainly investing in overseas markets as the purpose of setting it up is to mop up China's huge forex reserves," he said.
Copyright Agence France-Presse, 2007