March 6, 2012, 11:14 a.m. ET
Article from The Wall Street Journal
By LINGLING WEI
Wang Jianxi, an executive vice president and chief risk officer at China Investment Corp., is also a member of the National Committee of the Chinese People's Political Consultative Conference, an advisory body to the country's legislature. He sat down with a reporter for The Wall Street Journal on the sidelines of the committee's annual meeting in Beijing and talked about the sovereign-wealth fund's recapitalization, investment strategy, China's foreign-exchange reserves, and the banking sector.
Here is an edited transcript.
The Wall Street Journal: CIC just got $30 billion of new capital. Any more details on the recapitalization?
Mr. Wang: CIC received the $30 billion at the end of last year from the State Administration of Foreign Exchange. We very much hope for a clear funding mechanism just like what other, more mature, sovereign-wealth funds have, such as the funds in Norway and Singapore. We're working with certain government entities on setting up the mechanism.
WSJ: What is CIC's overall investment strategy?
Mr. Wang: CIC's investments are broadly diversified by sector, geography and asset class. At the core of the investment strategy is an asset-allocation framework that currently consists of seven asset classes including stocks, bonds and private equity. Long-term investments including direct investments, private equity, infrastructure and real estate now account for more than half of the fund's global portfolio.
Based on that framework, we periodically review our portfolio and make adjustments to our tactical asset allocation level. In the short term, there will be a positive deviation to that framework.
For instance, CIC increased its investments in emerging markets for a period of time last year. It was active deviation for obtaining alpha return. However, it might turn out to hurt the fund's return due to underperformance of emerging markets in 2011.
WSJ: Investors are very keen to know whether CIC will invest in Europe. Is CIC interested in buying European debt?
Mr. Wang: CIC is a long-term, financial investor that pays close attention to risks. CIC won't be part of any decision by the Chinese government to help Europe or not. The decision lies with China's central bank [and] the Ministry of Finance via multinational and international mechanisms such as the European Financial Stability Facility and the International Monetary Fund.
But if there are good investment opportunities in Europe, we will consider. We base our investment decisions on risks and returns. We are not speculative investors.
WSJ: Premier Wen Jiabao has said one of the priorities this year for the financial sector is to improve management of China's foreign-exchange reserves. What kind of a role do you see CIC playing going forward?
Mr. Wang: CIC is a meaningful experiment for China and can help preserve wealth for China's future generations.
I support the idea of "cang hui yu min," [the government allocating more forex reserves to households for investment purposes]. In a normal economic system, the private sector should be allowed to hold a big portion of the reserves, while the central bank should only hold what is needed to meet the balance of payments obligations.
WSJ: In addition to the global portfolio, CIC also has a unit that holds stakes in big Chinese banks. What's your outlook on the banking sector?
Mr. Wang: Chinese banks in general are healthy. Their asset quality, capital-adequacy ratios and profits are all stronger than ever. A slowing property market and a potential increase in bad loans to local-government financial vehicles would cause a deterioration in Chinese banks' asset quality, but that risk is manageable unless the overall economy tanks, which is unlikely.
I advocate the renewed move in China to develop a securitization market so that banks could increase their ability to lend while spreading the lending risks. However, we need to carefully monitor any risks associated with securitization.
WSJ: Questions have been raised in China about whether the domestically focused unit, Central Huijin, should be separated out of CIC so the fund can focus on overseas investments only. What do you think of that?
Mr. Wang: CIC restructured its corporate operations late last year. It created a unit, called CIC International, to solely focus on overseas investments. That unit is separate from Central Huijin. Both units operate as direct subsidiaries under the control of CIC.
Central Huijin's large stakes in state-owned Chinese banks had presented some regulatory obstacles for the fund when investing abroad. The reshuffle can help remove those hurdles.
Write to Lingling Wei at lingling.wei@wsj.com
Article from The Wall Street Journal