China will send ripples through the financial world when it unleashes an investment company with more money under management than any mutual fund in existence, analysts said.
The State Foreign Exchange Investment Company, which could be formed within just months, is expected to be in charge of $210 billion (Rs9.24 lakh crore), or one-fifth the nation’s enormous foreign exchange reserves, they said.
“A company like that will definitely have an impact on global markets,” said Zhang Ming, a Beijing-based economist with the Chinese Academy of Social Sciences.
“Other investors will be following it closely and try and guess its next move. They’ll buy assets that the company is likely to buy, and withdraw from markets if that’s what theybelieve the company will do,” he said.
The State Foreign Exchange Investment Company is expected to spend its money on a wide array of investment targets at home and abroad, from oil and gas to financial assets and entire companies, analysts said. It will get its huge bag of money as part of a plan to divide China’s $1.07 trillion worth reserves into three portions, the Southern Weekly paper said recently.
Another $100 billion from the reserves will be allocated to Central Huijin, a government investment arm, while $700 billion will stay under management by the State Administration of Foreign Exchange, the paper said.
That arrangement will put the State Foreign Exchange Investment Company in charge of more money than the approximately $160 billion of assets controlled by the Growth Fund of America, the world’s largest mutual fund.
“In the long term, the company should become a national reserve asset management company, which should be able to earn returns quite a bit higher than those from US Treasury bonds,” said Zhou Jiangong, a Shanghai-based economic analyst.
The State Administration of Foreign Exchange, which currently handles the reserves, does not necessarily have the required expertise, according to Zhang Ming.
“They’ve got a lot of experience with low-yield government bonds, but they know relatively little about other types of assets,” he explained.