China Investment Corporation (CIC) is the world’s second largest sovereign wealth fund, with more than $1 trillion in assets, a global portfolio and control over a large investment vehicle at home called Central Huijin.¹CIC oversees Central Huijin, a major Chinese investor in state-owned enterprises (SOEs) that manages $686 billion. Historical conversion from the 4.78 trillion RMB cited in CIC’s 2019 annual report. Central Huijin has taken stakes in 18 SOEs since its formation in 2003.

Although the Government Pension Fund of Norway, formed in 1990 to invest the state’s excess oil revenues, remains the world’s biggest sovereign wealth fund, CIC is closing on it for the top spot. The Beijing-based fund invests around the world, and has been taking stakes in technology firms and projects in countries associated with China’s Belt and Road Initiative.

Like most sovereign wealth funds, CIC grew out of China’s emergence as a global financial power. Beijing set up the fund in 2007, at a time when China was holding more than $1 trillion in foreign exchange reserves. Rather than putting all of that money in low-yielding U.S. Treasury bonds, the state set up CIC, with an initial pledge of $200 billion.²CIC is internally restructuring into two committees that manage public and private assets, Bloomberg reported in January. They’re set to replace the existing CIC International and CIC Capital, which were largely divided along international versus domestic lines.

Things didn’t exactly begin smoothly. On the eve of the global financial crisis, the fund made huge bets on Blackstone ($3 billion) and Morgan Stanley ($5 billion), as well as significant investments in the U.S. stock market. Since then, however, CIC has diversified into utilities, property and infrastructure projects. Its authority has also expanded with its oversight of Central Huijin, a state vehicle that holds shares in many of China’s biggest banks and financial services firms.

This week, The Wire looks at one of the world’s most powerful sovereign wealth funds, how it stacks up, and what it invests in. 

Trillions to Go Around

Sovereign wealth funds (SWF) are set up to invest the savings or holdings of a state, but their models and goals often differ.³The U.S. Social Security Trust Fund, though not considered a sovereign wealth fund, operates similarly, as do various countries’ and unions’ pension funds. The mission of the Norway Government Pension Fund, for instance, is to maintain the government’s economic stability through the tides of oil sales and prices, a lucrative Norwegian business.

China has multiple SWFs, which makes its strategy with CIC quite different. The youngest sovereign wealth fund in the top ten, CIC draws on foreign exchange reserves and looks to maximize returns, with more than 80 percent of its funds earmarked for equities and alternative assets, like hedge funds and real estate. But the country has additional funds that focus on putting money back into the Chinese economy, such as the National Council for Social Security Fund (NSSF), which is ranked No. 9. According to its 2019 annual report, the NSSF invests heavily in domestic firms that trade on the country’s major stock exchanges, in Shanghai and Shenzhen.

Buying up Nest Eggs

SWFs like CIC don’t need speedy returns and they can have billions in capital on hand, offering them the unique position to get into the stable but costly world of utilities and infrastructure. Energy, utilities, and infrastructure investments now take up a large share of CIC’s “alternative assets,” from Manhattan skyscrapers to wastewater treatment companies. CIC has also teamed up with other SWFs and hedge funds to purchase controlling stakes in natural gas distributors in Brazil and Canada. 

One of CIC’s earliest and biggest deals came to an end in 2018 when the fund sold its stake in the U.S. investment management firm Blackstone, which is led by Stephen A. Schwarzman. The sovereign wealth fund paid $3 billion for a stake in 2007. Beyond being a substantial investment in its own right, Blackstone also sold CIC its majority stake in LOGICOR in 2017 — one of CIC’s biggest transactions, for about $14 billion. CIC also owns a 10 percent stake in London’s Heathrow Airport.

Below are some of CIC’s international investments into utilities, mining, and real estate.

Central Huijin Keeps It Local

Central Huijin, the massive state holding agency, operates more as a stabilizing entity for China’s state-owned banks and financial services companies. It was formed in 2003, taking and investing bonds issued by the Ministry of Finance in what was viewed as a bailout for struggling banks. Central Huijin has since been used to steady wobbling enterprises — taking its stake in Hengfeng Bank in 2019, for instance, which analysts at the time said was an indication of state concern over the potential consequences of a large commercial lender failing. 

Its public holdings, seen in the bubble chart below, amount to over a third of a trillion dollars, and its invested assets total $686 billion. China Huijin wholly owns China Jianyin Investment, which is another investment firm that holds stakes in about 160 companies, including NXP Semiconductors. And Central Huijin itself has significant stakes in many of China’s biggest banks and brokerage houses, including: China Construction Bank, Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, Shenwan Hongyuan Group, New China Life Insurance, China International Capital Corporation (CICC), China Reinsurance Group, China Development Bank, Hengfeng Bank, China Everbright Group, China Export & Credit Insurance Corporation, China Galaxy Financial Holdings, China Securities, China Galaxy Asset Management, and Guotai Jun’an Investment Management. 

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