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PBOC plans to give US$10b to new venture

(Shanghai Daily)

13:35, May 10, 2012

China's central bank plans to give US$10 billion from its huge pile of foreign exchange reserves to a new entity to assist Chinese state-owned firms to invest abroad, four sources with direct knowledge of the matter said yesterday.

The People's Bank of China is in talks with China Reform Holdings Corp, a company controlled by the State-owned Asset Supervision and Administration Commission, to set up a joint venture, probably abroad, the sources said.

"The central bank plans to offer US$10 billion for the cooperation. The negotiations have been going on for a while," one source said.

"The two sides prefer to set up a joint venture overseas, which will try to help state-owned firms to invest abroad with foreign exchange reserves," the source added.

China has the world's largest stockpile of foreign exchange reserves totaling US$3.3 trillion, and it has been seeking ways to diversify holdings to preserve value and improve returns.

The State Administration of Foreign Exchange manages the bulk of China's official foreign exchange reserves. China Investment Corp, a sovereign wealth fund, was set up in 2007 with an initial US$200 billion. The fund had US$410 billion under management at the end of 2010.

Sources told Reuters in February that CIC was set to receive a further US$50 billion injection. CIC Executive Vice President Jesse Wang said in March that the fund had been given an extra US$30 billion in 2011.

China is also increasing efforts to support domestic firms investing abroad.

Central bank Governor Zhou Xiaochuan said in April that China was encouraging capital outflows to help reduce imbalances caused by net capital inflows.

China has accumulated a vast store of reserves as its massive export industry has sucked in foreign currency which companies must exchange at the central bank to comply with the country's closed capital account rules.

It was not immediately clear how the new operation would further China's stated ambition of making more overseas investments with its foreign currency holdings.

The Ministry of Commerce said in January that it was targeting US$560 billion in outbound foreign direct investment in the five years to 2015.

China has faced repeated obstacles to making major overseas acquisitions in recent years, whether they are political objections from governments of potential targets or internal wrangles over the permissions needed to make deals.

Set up in 2010, China Reform Holdings Corp, with initial registered capital of 4.5 billion yuan (US$713 million), helps the State-owned Asset Supervision and Administration Commission consolidate state assets under its oversight.

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