China to restructure sovereign wealth fund

Beijing plans to restructure its US$300 billion sovereign wealth fund, China Investment Corporation (CIC) by spinning off its domestic investment arm, Reuters reported, citing China Business News. The announcement follows months rumors about the proposed split. The motivations for the decision are not clear; some believe it is political infighting, others say it is a mechanism for regulators to tighten control over the financial sector. At present Huijin holds stakes in many key state-owned financial institutions, while CIC focuses on investment overseas. The government plans to separate Huijin’s accounts from CIC and create a new entity, CIC International, which will concentrate on the fund’s investments overseas. CIC will hold controlling stakes in both entities. China’s central bank will inject around US$15.68 billion into CIC International. The split could benefit both CIC and Huijin: Huijin’s status in the domestic bureaucracy could be elevated by the move, and CIC will be freed to concentrate on investing China’s foreign currency reserves in riskier, high-return overseas assets.