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August 31, 2009

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CIC may seek more FX to run

CHINA Investment Corp is investing as much overseas each month this year as it did in all of last year, Lou Jiwei, the chairman of the US$298-billion sovereign wealth fund, said last Saturday.

CIC is counting on handsome returns this year and might one day ask the government to hand it more of the country's record hoard of foreign exchange reserves to manage, said Lou, a former vice finance minister.

The fund invested just US$4.8 billion outside China last year as it kept its powder dry during the global financial crisis, when asset prices tumbled. It held fully 87.4 percent of its overseas investments in cash or cash equivalents.

Now that markets are recovering, CIC is constructing a broad-based portfolio, Lou told reporters on the sidelines of a forum organized by the Washington-based Brookings Institution and the Chinese Economists 50 Forum, a Chinese think-tank.

CIC posted a negative 2.1 percent return on its global investment portfolio last year as the value of stakes such as those in Wall Street bank Morgan Stanley and private equity giant Blackstone Group slumped.

But Lou said this year was shaping up better.

"It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles, and we're just taking advantage of that. So we can't lose," he said.

CIC was set up in September 2007 with US$200 billion of foreign currency reserves transferred from the central bank, which manages its own stockpile of US$2.13 trillion.

"If our returns are not bad and the state's FX reserves are still rising, we may go and ask for more," Lou said.

He said the risk of a decline in the dollar risks was more of a national issue for China than for CIC because its capital is in dollars.

Asked whether CIC would be a keen buyer in the United States, Lou said CIC can buy anywhere in the world, but it cannot avoid buying US assets because the US economy and capital markets are so large.

Lou said CIC was building a broad investment portfolio to hedge against inflation and deflation and to provide guaranteed returns.


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